The recession in Greece is completely artificial and completely unnecessary.
The Papandreou and now the Papademos regime have had to work extremely hard to make the Greek recession so bad.
This is why I say the Greek recession is fiction. It is a completely artificial phenomenon and could be easily fixed, if the political class in Greece wanted to fix it.
How did Papandreou create the recession and how hard did he have to try to make it happen?
Check out this article for a brief flavour. And there have been more”measures” since this article was written which have been imposed by the Papademos regime.
The fact is the Euro, if it were forced to function in a truly free way, would have forced Greece to default AND forced the Greek economy to become competitive.
The Euro would have also have forced the Greek government to cut back its spending and to reduce taxes and regulations.
The Euro, we are led to believe, has taken away the ability of Greece to print its own currency. This has meant that the Greek trade deficit is now a problem. Greece can no longer replace the money it sends abroad.
As I have highlighted many time before, it would be relatively straight forward to balance the Greek trade deficit.
And a default would force the Greek government to balance its spending because it simply would not be able to borrow.
Both these things are positive for the Greek people.
However there is a fundamental problem with the Greek political system and that is the Greek politicians do not want to do the right thing.
Even if Greece were to default I imagine that the Greek government would not cut the workforce. Instead I think the Greek government would probably just reduce all wages in the public sector and also increase taxes on the private sector. They Greek political class could simply not bear seeing their power decline.
You would hear regular news reports about how the Greek economy is nosediving and the Greek government would refuse to change its course.
Even though the amount of money in circulation was falling rapidly the Greek political class would either be unwilling or completely clueless as how to stop the hemorrhaging.
Their solution to the problem of the gash in the neck would be to buy a bigger knife.
What would stop the decline? I do not know. And I am talking about a post default enironment here. But does it not sound like what is currently happening?
The truth is the Greek economy could be turned around extremely quickly. The fact is the central banks do not want this to happen. If you know why, please let me know.
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