Ekathimerini spotted this important statement
In his interview with CNBC, Papademos also stressed the need for wage reforms. “What you have to do is to improve competitiveness, which partly depends on wage moderation, an internal devaluation and a reduction of prices and wages,” the premier said.
This is the original article and video http://www.cnbc.com/id/46004247
So there you have it, the Papademos regime has come clean and stated what their true mission is in Greece and that is to make people poorer. That is their solution to Greece’s problems.
By restricting the amount of cash available in the country the Papademos regime want to make it more expensive for Greeks to import product from outside of Greece.
This is the way central banks increase “competitiveness”. By making people in one country so poor they can no longer afford to buy things from other countries forcing the country to make more things inside the country.
httpv
Will making Greeks poorer really help Greece be more competitive?
It has a chance, in the same way China is competitive. China competitive not because it is a hub of innovation or the entrepreneurial spirit is inside every Chinese (although it may play a part). China is “competitive” because it’s people get paid so little.
Papademos must be looking at the communist regime in China and thinking, “this is what I want for Greece”.
How is Papademos and the central banks going to make Greeks poorer through internal currency devaluation?
Simply be reducing the amount of money in circulation. Not so much a “devaluation”, to call it a devaluation is a blatant play on words, not so much a devaluation but a deflating of the Greek economy.
The Greek central bank, like all central banks have the monopoly on the money supply. The monopoly gives central bankers god like powers over the people. Papademos has stated that he wants to reduce the amount of money in circulation in Greece, not to make the country “more competitive” but to make the Greeks consume less.
If Papademos and the central bankers were genuinely interested in increasing the competitiveness of the Greek economy they would try to fix the cause of the problems. For Papademos to talk about devaluation and not address the principle measurement of competitiveness shows how the “restructuring” and “measures” are, in my opinion, a complete smoke screen.
Greece is not uncompetitive simply because a central banker decides people are paid too much. Wages are a tiny part of the whole picture. Tax, rules and government regulations are by far the biggest contributors to a lack of a countries combativeness yet Papademos does not mention any of these critical issues.
Papademos saying that a reduction in wages and an internal devaluation are the answer shows that there is a bigger agenda.
As I mentioned, it is impossible for Greece to undergo an “internal devaluation”. For a central banker to come out and say an internal devaluation is possible when a country has little or no control over the value of the currency in the hands of citizens either shows Papademos and the central banks are well out of their depth, or they are simply trying to mislead people.
If Greece had the Drachma an internal devaluation would take the form of an increase in the amount of money in circulation. This is clearly not going to have any effect in Greece because it has the Euro.
So the only other alternative is to reduce the buying power of the people (people not currency) is to reduce the amount of money in circulation. Papademos is in effect saying he wants to reduce the value of the Greek people by restricting the amount of money Greeks can get paid for their work and/or property.
If the trade deficit is not addressed then this is what is going to happen. The value of Greek labour is simply going to be made worthless simply because a central banker wanted it so.
This devaluation of the Greek people will have a big effect on the Greek trade deficit but the effects will not be down to positive reasons like the Greeks being more productive and exporting more stuff abroad or increasing the size of the tourism industry.
The “positive” effects on the Greek trade deficit will be down to Greeks not having enough money to buy the thing they want from outside of the country.
It is worrying for me looking in on the Greek situation and seeing the tax rises, the increasing regulations and how the stated aim of the Papademos regime is to devalue the currency. It shows that rather than trying to rejuvenate the Greek economy, the aim is simply to reduce the amount of things that Greeks can consume, in other words, the simple goal is to make Greeks much poorer.
And we are not talking about luxuries not being able to be bought by ordinary Greeks in the future, we are talking about the prices of necessities going through the roof, maybe not in turns of Euros (which would really expose what was going on ) but in terms of the ability of people to buy things like petrol because they simply do not have the money.
The only way Papademos can devalue the work and property of the Greek people is by restricting the money supply and it is only possible for Papademos to do this because the supply of currency is a monopoly of the central banks. There is no competition on the supply of the currency.
If Papademos was really serious about restoring or increasing the competitiveness of the Greek economy taxes, rules and regulations would be the first things to be reduced. To increase the competitiveness of a country you have to reduce the cost of doing business which in turn increases the buying power of the people even though they may have less money.
There is no sign that Papademos will do this, if anything the opposite is happening, not so much under Papademos but certainly under Papandreou.
As I have mentioned in other articles it is possible for Greeks to take back control of their own country but it will take some radical changes and a complete reorganization of the way the country is run not to mention a complete change in people’s mentality.
The power of central government needs to slashed with power being handed back to small independent Greek city states/counties.
In addition, the god like powers of the central bankers needs to be stripped away. Greece needs to return to a commodities based currency, based on Gold or Silver with any business being free to obtain a license to issue the Greek currency on the condition people can exchange their currency for Gold or Silver at the issuing bank, on request.
These 2 changes although massive should ensure that Greece has a balanced trade account with the rest of the world which is the key to Greek independence and prosperity. The key to Greek independence and prosperity is not enforcing lower wages on Greek people by artificially restricting the money supply.
And all this asks one very interesting question, given that Papademos’s stated aim is to reduce the amount of Euro currency in Greece, how does he expect the Greek government expect to be able to service its debt. Surely an internal devaluation will guarantee a government default?
The floating exchange rate Drachma maintained the balance of trade. The wage decrease tries to bring it back. In a currency area Money and jobs will always flow to where goods are made cheaply, but also in large variety, Greece does not have an Industrial maufacturing tradition, and has a warm climate. Now Greeks will not be able to buy BMW’s and that was the case before the Euro. But now there may be a psychological problem. Back then they could ignore the material wealth of the German tourists visiting in BMWs as they had their own Greek currency, Drachma, and culture. Now when confronted with a German tourist in a BMW, he is a fellow Euro citizen, and the Greeks may just like a feel poor Europeans.
You have a point, but I think the Greeks now they do not have as much money as the Germans already. About the psychological aspects, its an interesting perspective that I didn’t think about.
About what you said about the Drachma balancing the trade deficit. Greece has not had a balanced trade account. The trade deficit was always funded with the printing of new Drachmas.
With regards to manufacturing tradition, this is mostly true but you have to ask why is Greece uncompetitive with Germany for example. It comes down to something really simple, I believe. The Greek economy is run badly deliberately to keep the country dependent on the major economies like France, the US and the UK. A dependent country is easy to manipulate as you can see now with the draconian austerity measures and Greeks thinking that it is in their best interest.
Wage reduction is not a policy it is a result of the cash flowing out of Greece to loan repayments to external creditors and the trade deficit. Tourism could be boosted but as for competitiveness I agree with you,how can exports be boosted when traditionally there are few.
Hello again! Papademos has come out and said deflation is the way, he says, to sort out the Greek economy. This is false. There is no reason why Greece could not continue on like it has done since it adopted the Euro. The banks in Greece could simply start lending again but they have more or less stopped.
The banking cartel in Greece is sucking around a billion Euros a month out of the economy because they are not making new loans. It is their choice to do this and it is completely separate from the sovereign debt crisis.
The trade deficit is reducing but this is down to the amount of money be reduced in the economy by the banks as per my previous point.
The massive tax increases are taking money out of the hands of the people as well.
At the end of the day, Greece, like most countries are manipulated by the central banks and their banking cartel.
If Papademos was really interested in making Greece competitive with other countries he would reduce the cost of doing business in Greece.
Cut the regulations of which there are thousands upon thousands.
Making it cheaper to do business will reduce prices of everything in Greece, including wages, imported goods as well as domestically produced goods and this would also have the knock on effect of making Greek exports cheaper.
It is really simple to fix the Greek economy, I think every Greek will tell you what needs to be done. Unfortunately you have the central banks with their monopoly on the money supply manipulating people’s lives to suit their own interests.
When you see them on TV they make everything sound very complicated. This is because this is the only way the can make their actions seem slightly logical.
The have to mix things up and confuse people so they cannot see the real consequences of their actions. My opinion.
I think Greece does not have a manufacturing tradition beacause of the climate. they dont’t spend all day in a factory because they don’t need to. In ancient history they had more time for reflection and the celebrated Philosophy. If you look here I think you will see that the trade deficit co-incides with the euro introduction. http://www.tradingeconomics.com/greece/balance-of-trade. Enter in a long time scale.
The southern warmer parts of countries are often monetarilly “poorer”.
I did check that site, since 2001 there has been a deficit.
This is an excellent piece, it shows that since 1990 there has been a deficit, http://www.eurojournals.com/mefe_7_12.pdf
As the article says there is a strong correlation between competitiveness and trade deficit. Take away the regulations and taxes and everything will work out for the best.
Artificial manipulation of the currency and economy always ends badly.
Do these things sound familiar?
in June 1945 when prominent economist Kyriakos Varvaressos was brought in as economic czar. However, his plan of increasing foreign assistance, reviving domestic production and imposing controls on wages and prices through a redistribution of wealth worsened the country’s budget deficit and Varvaressos resigned on September 1.
After the civil war of Jan-Dec. 1945/46, the British offered a plan to stabilize the country, which included increasing revenues through the sale of aid goods, an adjustment of specific tax rates, improved tax collection methods and the creation of the Currency Committee (composed of three Greek Cabinet Ministers, one Briton and one American) for fiscal responsibility. By the beginning of 1947, prices had stabilized, public confidence was restored and national income rose, bringing Greece out of the vortex of hyperinflation. – I am sure the Bank of England had zero involvement….
http://www.cnbc.com/id/41532451/The_Worst_Hyperinflation_Situations_of_All_Time?slide=2
There is no need to invoke sinister central banks.
what we are seeing here is an adjustment to the removal of exchange rates between trading partners. That said I agree with you that the the creation of gonglomerate states can benefit poticians to the detrement of individuals. Here is Miltan Freedman explaining how exchange rates moderate trade deficits. http://www.youtube.com/watch?v=gR_D3Q8To-s.
Thank you for the link, very interesting.
About central banks, I didn’t say they were sinister, or not, I was merely saying that centrally controlled economy is bad, I think Friedman agrees.
About an adjustment to the removal of exchange rates between trading partners. You are right, but there is nothing natural or free market about the current process. It is being manipulated by the ECB and IMF.
If free markets were able to operate Greece would have defaulted and the government would have started afresh. That would have been the natural adjustment.
The Greek government would then had to have immediately stopped deficit spending and immediately reduce regulations and taxation to balance the trade account to stop money from leaving the country.
http://independence4wales.com/2011/5-reasons-why-greece-should-default
A default would have brought about all the changes the IMF, EU and ECB claim they want but they will not let it happen naturally through free markets. In fact the measure they are imposing have the exact opposite effect.
http://independence4wales.com/2011/8-ways-papandreou-sabotaged-the-greek-economy