If you read the press here in the UK or elsewhere in Europe, you would be led to believe that it is a given that the Greek government is seeking special treatment, that it has some kind of special preference, or divine right over all the other EU members. This of course changes depending on the way you look at it and is an opinion given as a fact.
Another way to look at the scenario is to attempt to analyse the predicament in terms of social cost, and there are many, often far harsher in scale. For example there are figures which I have taken from Reuters showing unemployment up from 8 percent before the crash and subsequent bailouts to 26 percent now. This number is just part of the picture what with over 1 in every 2 young people also out of work… a truly harrowing figure!
Wages have fallen by a third, state pay has fallen fast and for a long time, the reserve army of unemployed bargains for jobs and the brain drain has really taken hold. These outcomes are worse than those experienced by any other Eurozone country during the previous recessions and far worse than those projected under the two Greek bailouts. This is the perhaps the more than justified reason why the Greek government has criticised these programmes it wants and needs an alternative. It is shocking that there is not more universal criticism of the austerity drive forced on Greece in return for much needed cash to tide over their loans.
Why has austerity hit Greece so hard?
As cuts bite into the circular flow, Greece which relied heavily on internal trade and on tourism, the cuts lead directly a slump in GDP, employment and tax take all of which led to rising DEBT:GDP ratios. Forget compound interest this is compound problems, with little interest in seeing the problems fixed.
Countries such as Germany have benefited from exchange and interest rates that are considerably lower than they would have been had the countries kept their own independent currencies.
What will happen whichever way the negotiation pan out?
Firstly, there is a real problem being avoided presently in Greece, the fact that Greece had to bail its own banks out at the height of the crisis like many other nations was the only way of assuring a secure an adequate amount of capital in the banks that the ATM’s kept working. The situation has only got worse over the years, and has again become an issue in the run up to Syriza’s victory in February and during the ongoing negotiations, capital has been leaving the banks and Greece’s banks have managed to keep liquidity to cover the day to day lending and confidence in the economy by a reliance on the European Liquidity fund. It has been suggested this could end within the year. This however has only meant that the shortfalls in capital the Greek banks have been holding has not had to be replaced yet, though inevitably one day it will.
The European central bank will pull the plug or draw back some of its assistance at some point, the issue is that when this happens there will be higher interest rates sucking out much needed investment and this fall in investment will be further reducing investment needed to fill the spare capacity in the economy and the Greeks ability to fill it is not as of yet coming from its creditors.
Is it perhaps time for something else?