A longish comment in the
Economist ("Comments on Europe's sovereign debt crisis: Acropolis") deserves the extra attention it commands.
"The question that will go unanswered in the whole crisis, is what would have been different had the German government rescued Greece in a more timely fashion.
I think not all that much. The austerity measures placed on Greece are unreasonable, unjustifiable and have no way of achieving their goal of repaying the debt. Austerity measures are tantamount to collectively putting Greece into a debtor's prison. (...)
Putting a debtor into prison only works, if the debtor in fact *has* the money, but refuses to pay it. But more often than not, the debtor has spent the money in one way or another and no matter how long you let him rot in prison, will not be able to pay it back. If your desire is to get your money back and not to shame the debtor, then you'd rather help him find a way to earn it back.
Placing austerity measures on a country with the hope of its debt being repaid, assumes that its expenditure is somehow so grossly in excess of its needs, that reducing expenditure alone will easily be enough to pay it back. But this is not at all the case. Even if Greece decided to cut *all* its military expenditure in order to repay its debt, the Greek deficit would merely be diminished from its current 13% of GDP to 9%.
Extravagant expenditure alone cannot account for the deficit and cutting expenditure will do nothing to effectively diminish it, not to mention do anything in the way of repaying Greek debt. [Presumably the writer refers to standard expenditure, not extraordinary cash outflows of all kinds. If so, he is wrong. There are holes that can be easily identified and plugged. To name but one, OSE, the state run railway, loses Euro: 1 billion per year.]
Trying to repay Greece's debt through austerity measures - increased taxes and decreased spending - is a laughable proposition. There are exactly two ways in which Greece can repay its debt.
1) Inflation. This will be impossible unless Greece gets out of the Euro area and also undesirable for all involved.
2) Economic growth. But this will require increased spending, reduced taxes and growing wages - quite the contrary of the austerity measures required from both the IMF and the EU (with Germany in the front line) and almost impossible to achieve so long as Germany follows the doctrine of keeping its real-wage growth below increases of productivity in order to dump its products on other markets - which is impoverishing its own people and those abroad.
The other options to resolve the issue are debt forgiveness, debt restructuring or default. All of which amount to the same.
It is one thing to demand more efficient state spending and investments to spur economic growth and give advise how to achieve that. (Which I would agree with.) It is quite another to just demand indiscriminate cuts in government spending and increases in taxation to sooth the population of Germany and the other EU countries. Instead of holding a useless grudge against Greece, a real solution addressing the economic imbalances within the EU would be best for all concerned."
I think not all that much. The austerity measures placed on Greece are unreasonable, unjustifiable and have no way of achieving their goal of repaying the debt. Austerity measures are tantamount to collectively putting Greece into a debtor's prison. (...)
Putting a debtor into prison only works, if the debtor in fact *has* the money, but refuses to pay it. But more often than not, the debtor has spent the money in one way or another and no matter how long you let him rot in prison, will not be able to pay it back. If your desire is to get your money back and not to shame the debtor, then you'd rather help him find a way to earn it back.
Placing austerity measures on a country with the hope of its debt being repaid, assumes that its expenditure is somehow so grossly in excess of its needs, that reducing expenditure alone will easily be enough to pay it back. But this is not at all the case. Even if Greece decided to cut *all* its military expenditure in order to repay its debt, the Greek deficit would merely be diminished from its current 13% of GDP to 9%.
Extravagant expenditure alone cannot account for the deficit and cutting expenditure will do nothing to effectively diminish it, not to mention do anything in the way of repaying Greek debt. [Presumably the writer refers to standard expenditure, not extraordinary cash outflows of all kinds. If so, he is wrong. There are holes that can be easily identified and plugged. To name but one, OSE, the state run railway, loses Euro: 1 billion per year.]
Trying to repay Greece's debt through austerity measures - increased taxes and decreased spending - is a laughable proposition. There are exactly two ways in which Greece can repay its debt.
1) Inflation. This will be impossible unless Greece gets out of the Euro area and also undesirable for all involved.
2) Economic growth. But this will require increased spending, reduced taxes and growing wages - quite the contrary of the austerity measures required from both the IMF and the EU (with Germany in the front line) and almost impossible to achieve so long as Germany follows the doctrine of keeping its real-wage growth below increases of productivity in order to dump its products on other markets - which is impoverishing its own people and those abroad.
The other options to resolve the issue are debt forgiveness, debt restructuring or default. All of which amount to the same.