Austerity, can´t it be delayed?

loureed4 · Nov 5, 2012

Hello,

The Troika (IMF, EU and the ECB) has imposed austerity measures to Greece , after lending to the Greeks 300 billions of Euros.

I am wondering many things about all of this:

1. The money the Greeks are receiving from the Troika is going to help Greece to grow economically? . That´s the intention I suppose, so that Greece can catch up with the other countries, and the Eurozone works fine again.

2. Many people claim that not to be the case, that Greece is going to be worse off, much worse, but that, anyway, the German and French banks will get the money that the Greeks owe them. I mean: The Troika does not care about Greece´s future whatsoever, but to receive the money that tha banks lent to the Greeks years ago. Can it be so?

3. Wouldn´t it be wiser to lend the money to the Greece (roughly 300 billion Euros) to let them grow and then, within two year, say, in 2015, impose these austerity measures?

Some claim too that this is what they (the Troika), intends:
-To receive the money from Greece from the austerity measures so that the French and German banks take the money (it is their money anyway, I can understand this)
-To let them fall, default after this austerity measures, and having the money back the French and German banks, the Greeks will have to leave the Euro because they won´t be able to catch up with Eurozone anymore.

Thanks in advance!.

David · Nov 5, 2012

loureed4 said:
Some claim too that this is what they (the Troika), intends:
-To receive the money from Greece from the austerity measures so that the French and German banks take the money (it is their money anyway, I can understand this)
-To let them fall, default after this austerity measures, and having the money back the French and German banks, the Greeks will have to leave the Euro because they won´t be able to catch up with Eurozone anymore.

Pretty much, ya.

loureed4 · Nov 5, 2012

I see, thanks. They are going to destroy us on purpose, ....sounds nice of them!!

David · Nov 5, 2012

loureed4 said:
I see, thanks. They are going to destroy us on purpose, ....sounds nice of them!!

They're doing the same to Italy. The rest of the PIIGS might be able to recover but the EU is going to salvage however much money it can from Italy and Greece before cutting them loose. Italy deserves it and Greece should have never joined the EU.

loureed4 · Nov 5, 2012

They are doing the same to Italy, Greece, Spain, Portugal, but my original question remains: What for?!

tecoyah · Nov 5, 2012

In an attempt to prevent the collapse of the EU. Might work, might not...either way at least they are trying, as the alternative would be devastating worldwide.

reader · Nov 5, 2012

Turkey's situation was like this after the 99-2000 crisis. Torika's demands(Fiscal discipline, healthy tax system, Increasing working hours, the withdrawal of the state economy and it goes on...)are helpful for Greece if they have decided to be anopen-liberal economy.

But the country has a different kind of middle class as far as I can see. Generally all them public servant and other part of free market depends on their spending. That's what makes change toohard for the government.

And it is quite normal that creditor determines the terms of agreement.

tecoyah · Nov 5, 2012

reader said:
Turkey's situation was like this after the 99-2000 crisis. Torika's demands(Fiscal discipline, healthy tax system, Increasing working hours, the withdrawal of the state economy and it goes on...)are helpful for Greece if they have decided to be anopen-liberal economy.

But the country has a different kind of middle class as far as I can see. Generally all them public servant and other part of free market depends on their spending. That's what makes change toohard for the government.

And it is quite normal that creditor determines the terms of agreement.

The most clear explanation yet...and a reality that drives it.

myp · Nov 5, 2012

The effects of austerity are highly arguable but compared to say a year or two ago I think we have seen that austerity in a downturn isn't always a good thing- in fact, it can be pretty bad. As for Greece, more of this is about staving off a large systemic problem. The Eurozone will take a loss on Greece- they know it- they don't really expect them to pay back everything, it really isn't likely. The bigger concern is to stabilize the rest and to cut off the big ones (the core) from that risk before everything comes crashing down.

tecoyah · Nov 5, 2012

In other words...trying to save the E.U.

One can only hope they know what they are doing....we sure as hell don't seem to.

myp · Nov 5, 2012

tecoyah said:
In other words...trying to save the E.U.

One can only hope they know what they are doing....we sure as hell don't seem to.

I'd say the Fed has done a better job than the ECB actually. And Sumner and company seem to be getting through now too- even better.

tecoyah · Nov 5, 2012

I agree the FED has done a decent job...I will even give a few Kudos to Obama...but the congress is FUBAR, childish, and a detriment to progress.

In the United States, our issues do not have to do with debt, so much as the inability to act.

myp · Nov 5, 2012

I don't give kudos to Obama or Congress (the last 2 or the previous 2 years). For example, I think a lot of the stimulus was very wasteful. I would have liked to see more infrastructure and maybe certain science/research/innovation investments and that's about it. There was also a lot of wasteful spending that could be redirected to such more "needed" spending.

I don't really believe in fiscal stimulus as optimal anyway- I think monetary stimulus is a much better route, but both sides need to let the Fed do its thing without continuing to threaten its existence and operation (here it is mostly the right at fault).

tecoyah · Nov 5, 2012

Do you understand where things changed in the last 2 yrs.?

Compromise can be the double edged sword we all feel.

I agree the stimulus was far from perfect, sucked an alot of ways.

The alternative WOULD have been far worse.

myp · Nov 5, 2012

tecoyah said:
Do you understand where things changed in the last 2 yrs.?

Compromise can be the double edged sword we all feel.

I agree the stimulus was far from perfect, sucked an alot of ways.

The alternative WOULD have been far worse.

There are multiple alternatives. I would say if the Fed did the stimulus instead or even better if they targeted NGDP all along, the outcome would have been far BETTER. We might be out of recovery by now.

And no, I don't just blame the Fed for this- I blame DC more because they don't understand basic monetary theory let alone newer and deeper ideas behind monetary policy actions. They just like to pretend they are doing something to show face while they make sure they get all their silly little pork through. Even if that wasn't the case, monetary stimulus in my opinion has a lot fewer distortive effects than fiscal policy. I would limit fiscal policy to essentials like infrastructure.

loureed4 · Nov 6, 2012

myp said:
The effects of austerity are highly arguable but compared to say a year or two ago I think we have seen that austerity in a downturn isn't always a good thing- in fact, it can be pretty bad. As for Greece, more of this is about staving off a large systemic problem. The Eurozone will take a loss on Greece- they know it- they don't really expect them to pay back everything, it really isn't likely. The bigger concern is to stabilize the rest and to cut off the big ones (the core) from that risk before everything comes crashing down.

1.If Austerity measured don´t work, why are they imposing them?

2. Do they count on Greece not paying back?. Why are they then lending money to the Greeks, what for?. I mean, they could have used those 300 billion Euros to pay the creditors (French, German banks and the IMF)

3.Which countries are the core: Germany, France, UK, Belgium, Holland and Luxemburg?. That is what will remain?

4. The scenario: Spain, Portugal, Italy, Greece leaving the Euro? that is a likey outcome? I don´t think so, but I can´t understand at all the austerity measures , because they are damaging Greece, you could see the figures on google, on any Economics-related article. WHAT ON EARTH DO THEY REALLY WANT IF THEY TRULY KNOW THAT DOES NOT WORK? TO DRAG AN ECONOMY AS THE GREECE´S INTO A PREPETUAL PAYMENT OF DEBT, LIKE AFRICAN COUNTRIES? .

reader · Nov 6, 2012

myp said:
The effects of austerity are highly arguable but compared to say a year or two ago I think we have seen that austerity in a downturn isn't always a good thing- in fact, it can be pretty bad. As for Greece, more of this is about staving off a large systemic problem. The Eurozone will take a loss on Greece- they know it- they don't really expect them to pay back everything, it really isn't likely. The bigger concern is to stabilize the rest and to cut off the big ones (the core) from that risk before everything comes crashing down.

Almost all economic decisions are theoretically arguable. But it was payday for Greece with an empty wallet, losing all it's credibility in practice. So that, we should take this economic emergency into account when criticizing Troika's administration or Greece.

On the other hand I agree with you. they don't expect them to pay back in the short run. But the current relationship between Greece and Troika is also unsustainable.

loureed4 · Nov 6, 2012

Troika says: We are going to lend you 300.000.000.000 million Euros, but, you have to do this:

-Raise VAT up to 23%
-Lower the minimum wage from 720€ to 600€
-let´s fire a lot of civil servants (I don´t remember the figure)

Expecting for the government to have more revenue from the raise of the VAT, the minimun wages lower and the layoffs of many civil servants. This is the expected outcome: MORE REVENUE.

I say: If people have to live now with 600€ rather than with 720€ and on top of it the VAT is raised, they are going to consume much less, only milk, bread and such. So, the income from the VAT will decrease rather than increase as expected for the Troika. Moreover, the civil servants that will be fired, will havve to survive with the allowance, that is, say, 500€? , I don´t know the figure either but it is clear that these families will only now consume bread and milk and alike, and, by consuming much less, the VAT that the government will collect, will be, a lot less than expect, I should think.

This is the chain: people consuming less=> small businesses close=>unemployment grows=>these new unemployed people will consume a bit, very little, so, again that will led to=> more small business shut down=> less revenue from the VAT to the government.

That is why I guess they are claiming that austerity measures don´t work.

I wonder, where will those 300 billion Euros will go, what do they are for? to boost the real, daily economy, to help unemployed people, to help people to start new businesses, to do what?!!

loureed4 · Nov 6, 2012

What about this (from minute 2:40 to 3:20):

http://www.youtube.com/watch?NR=1&v=jrLtRxnW-U4&feature=endscreen

reader · Nov 6, 2012

loureed4 said:
Troika says: We are going to lend you 300.000.000.000 million Euros, but, you have to do this:

-Raise VAT up to 23%
-Lower the minimum wage from 720€ to 600€
-let´s fire a lot of civil servants (I don´t remember the figure)

İf the budget-balance of payments can't provide the source of the rates, you have wrote above, it's not Troika's fault. They need to ensure a balance for not borrowing more. İt mean politicians had directed economy in populist and unplanned way.

Austerity, can´t it be delayed?

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