March 28, 2024

News Cymru

Two sides to every headline

It was announced that the Greek economy shrank by almost 7% in the first half of 2011 yet the government is saying it is only going to increase the tax burden on the Greek economy.

Only today it was announced that the government is going to bring in a random “emergency property tax” of 4euro per square meter for homes.

This is not the first time the government has created new taxes in a bid to try and keep up with the money that is being sucked away.

The government does not seem to care where their current course is leading. Not matter what, they are going to try and make the loan payments. But you have to ask why?

Why is the government inflicting such draconian measures on the population? Papandreou says it is to “save”  the country. But save the country from what? A default? How can a default be worse that what the country is going through now? At least with a default you know where the bottom is and you can start to rebuild.

The current measures are leading Greece into a bottomless pit with no sign of being able to escape.

People in Greece should not forget that the current “measures” are not a short term thing.  These measures are designed to be permanent. The measures are designed to bring the government deficit down “permanently” and that means these measures are permanent.

So what the Greeks are seeing is a spiral down to a new baseline.  Greece is currently on a kamikaze dive to the new “normal” and Papandreou is at the controls and he is saying he is going to light the afterburners.

I do not know if the Greeks realise what the recession means to them. This recession means they are going to have to adjust to a different level of prosperity for the foreseeable future.

It is possible that the “measures” would not have been an insurmountable barrier if the private sector had just been left out of the programme. Unfortuantely the private sector has been stuck with the bill which was run up by the public sector.

Make no mistake, the problems in Greece are caused by one thing and one thing only and that is big government.

The fundamental mistake that Papandreou has made is first and foremost not to have slashed the government workforce earlier. In fact not a single government worker has lost their job since the crisis began. If you can believe that?

The people who have lost their government jobs are those that were on temporary contracts. And to be fair this does amount to thousands of people but as I mentioned, the government has made a fundamental error with the measures.

They have forced the private sector to pick up the governments tab and this has meant the private sector is not in a postion to take on the people let go by the state.

The only way there was going to be a long and short term solution to Greece’s problem was if the private sector was in a position to take on the people that were being let go by the government.

Unfortunately the government has raised taxes on private companies as well as creating numerous new random taxes for private individuals as well as companies.

There was only one way Greece was going ot get out of the hole and that was for the public sector to bear the full burden, that didn’t happen so a default is now more or less a certainty.

Was Papandreou given bad advice? Is Papandreou as incompetent as he looks? Or is this whole episode part of a carefully organised plan?

Given the fact that the government’s answer to the falling taxe revenue issue is to increase taxes rather than to address the issue of taxe avoidance, it is understandable to believe that this implosion of the Greek economy is part of a larger plan.

It is already being discussed that Greece should give up it’s sovereignty regarding it’s financial affairs. No Greek would have let this happen under normal circumstances so an implosion of the Greek economy was the only way it was going to be possible.

When the default comes people will be so desperate for a solution that they will accept any terms that they are given to them and I have a feeling that the terms of the post Greek default environment will entail Greece giving up it’s soverignty totally to Brussels.

Greece has already postponed payment of pension and wages, it is claimed to make the figures look better, today it is announced that the government has run out of money and it is now dependent on the next tranche of bail out money which is in no way guaranteed to arrive.

The question is now what is going to happen when the Greek government defaults.

It is going to be nowhere near as bad as people are predicting in the Greek press. Greek mainstream meadia are percieving a Greek default as the end of the world which of course it is not.

Greece will have to make some big changes post default though. The government will be forced to address the issue of not only the government deficit but also the trade deficit.

With out a balanced trade account Greece will be at the mercy of international bankers from now until enternity. As long as the party that is in power during the default understand that the government deficit and the trade deficit have to be tackled in tandem then Greece will have a prosperous future.

To balance the trade account, Greece will be forced to reduce taxes on the workers and businesses so the Greek economy can be competitive with the likes of Germany.

The big worry for the Greeks is that the country defaults and nothing changes, if this happens Greeks will have to get used to a much lower standard of living. If the government of the day acknowledges that taxes and regualtion have to be reduced, there is no reaosn why Greece can not come out of the default in a far stronger position than it has ever been in the modern era.

The changes will need politicians of principle and strength I can only hope that Greece has this type of person in charge when the inevitable default happens.

When will Greece default? Who can say for sure, personally I would be surprised if the default does not occur by the end of the year. There is always the possibility that the EU will continue to keep pumping money into Greece but I think it is becoming harder and harder politically for the bail outs to continue, but anything is possible!

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