American political discussion by Joseph Foster author of "Seeing Red, How America is Losing the Future" and Robert Lupoli a U.S. businessman. We’ve never met but exchanged thoughts by email and this blog for years. The discussion is focused on American politics and its place in the world. We welcome you to join the discussion. You may contact Joe at: JFoste3@aol.com "Seeing Red” is now available now at Amazon.com - click on book image below.
The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.
Wednesday, February 15, 2012
Germany Responsible for Bad Grecian Formula?
Joe: this morning I was just trying to get an understanding of what Germany via the so-called Troika is telling Greece to do in order to get the loan. Below is the clearest information I could find after searching the internet. The first piece is to me the most meaningful, the paragraph I found most interesting is directly below. The situation in the US may reach similar levels on panic, of course since the US is not in a Euro type zone, we can always just print more money, Greece cannot. I bullet pointed the main points in the second article.
ps. note the use of the word "firewall" in other words huge amounts of money and debt but the word "firewall" sounds so much better these financial guys always use this gimmick, developing new names for financial instruments and and financial policies. -Bob
Much of the current German-bashing is wild and unfair. But there is one respect in which Germany does bear responsibility for the current crisis. Germany was in the forefront of the countries pushing for the creation of the euro. And yet it is increasingly apparent that creating a single currency, without a single nation behind it, is at the root of the current crisis.
Greek politicians have approved a bill on austerity measures needed for a new bailout.
The agreement will unlock the latest 130bn euros (£108bn; $171bn) in bailout loans and allow a further 100bn-euro write-off of the country's debt to private banks. Athens faces loan repayments to private lenders of 14.4bn euros on 20 March which it cannot afford to pay and it has failed to cut its deficit.
What's in the austerity package?
·Greece was told to agree to further cuts in government spending equal to 1.5% of GDP, cuts in pensions and thousands more civil service job cuts.
·The government was told to make its labour markets more flexible, to dramatically cut the minimum wage and to scrap a habit of paying a "holiday bonus" equal to one or two months' extra pay.
·Taxes will increase by 3.38bn euros in 2013, following a 2.32bn euro increase in 2011.
·The increase includes a solidarity levy of between 1% and 5%, a cut in the tax-free threshold, a rise in VAT rates, and luxury taxes on yachts, pools and cars.
·In the public sector, pay will be cut and many bonuses scrapped.
·Some 30,000 public sector workers are to be suspended, wage bargaining will be suspended, and monthly pensions of above 1,000 euros cut by 20%.
·The government also aimed to raise about 50bn euros by 2020 from privatisations by selling land, utilities, ports, airports and mining rights, but recently this target has been revised down substantially because of the worsening economy.
Will it work?
·That is the 130bn-euro question. The aim is to cut the Greek government's debt from 160% of GDP to 120% of GDP by 2020.
·Despite the austerity measures taken so far, the Greek government still spends more than it receives in taxes.
·Some economists and Greek unions say the plan is doomed to fail. They argue that by making people poorer the measures will simply shrink the Greek economy, reducing tax revenues and increasing the deficit.
·But EU leaders argue that there is no choice, that spending needs to fall even if it hurts the economy in the short term.
Why is Greece in trouble?
·Greece has been living beyond its means since even before it joined the euro. After it adopted the euro, public spending soared and public sector wages practically doubled.
·However, while money has flowed out of the government's coffers, its income has been hit by widespread tax evasion.
Why did the crisis not end with the Greek bailout?
·Many other southern European countries ran up huge debts - government debts as well as household mortgage debts - during the past 10 years. They also enjoyed rapidly rising wage levels.
·Now the bust has come, it is very hard for them to repay the debts. And the high wage levels leave their economies uncompetitive compared with, for example, Germany.
·Because they are inside the euro, these governments cannot rely on their central bank - the ECB - to lend them the money. Nor can they devalue their currencies to regain a competitive edge.
·Meanwhile, they are having to push through very painful spending cuts and tax rises to get their borrowing under control.
·But some analysts argue this is just pushing their economies into recession, cutting tax revenues.
·In the meantime, EU leaders are struggling to enhance the "firewall", in case any further countries prove unable to repay their debts.
·In October, they agreed that the new European Financial Stability Fund would have up to 1tn euros to guard against future sovereign debt crises. However, the money has yet to be raised. Recently, the IMF said it, too, would have money available.