Wednesday, January 7, 2015

GREECE WHY IT WILL LEAVE EURO


 Alexandra Nikolovieni, 55, lost her job escorting young children on a school bus four years ago and has not been able to find another one since. To help financially, her daughter and her son-in-law, who have two children, moved into her house? But now they have lost their jobs, too.

Lefteris Pantazopoulos, 60, used to own three hardware stores that employed six people. Today, only one store remains open in Nea Ionia, with Mr. Pantazopoulos behind the counter and hardly any profit.The above two stories are very prominent in Greece and all those 19 states who are struggling.

Two goals of economic policymakers are low inflation and low unemployment. Suppose, for instance, that policymakers were to use monetary or fiscal policy to expand aggregate demand. This policy would move the economy along the short-run aggregate supply curve to a point of higher output and a higher price level. But Chancellor Angela Merkel of Germany, the most high-profile advocate of the argument that only through fiscal prudence can nations achieve stability and prosperity has gone for wild toss. Now when the economic thumb rule says something how cutting down expenditure and austerity measures brings growth is trillion dollar research.

Europe would be in doldrums was known form the day when the first crisis and deployment of QE based on austerity measures was adopted. I am least botheration about the current slowdown of the Euro zone and the current problems of Greece. My sleepless nights are due to the fear that Greece or any country opt of the 19 states of Euro-zone leaves the currency and blows the bugle of getting back into its own currency. The advantage point in this tennis game would go to the Greece and the whole world currency would go for a toss. This will create revolution of exits from the Euro and leave the debt burden Valuations.    The current status of the economy is that it has a debt burden of 175%  of its gross domestic product continues to weigh on its economy It doesn’t have any funds to pay back the ECB which it took in 2010-12. The depth of the slowdown is very deep .One simple calculation derived by me is that Since 2008, the year the global financial crisis began, the economy has shrunk an astounding 25%. If the Greek economy grew at 2% a year, it would still take 13 years to get back to its 2008 size. 

Now the biggest question and the quest for the answerer to that from where Greece will get the funds to pay back ECB. If employment levels which is the source of direct taxes is so low the how revenue will generate for Greece. Youth Unemployment Rate in Greece increased to 49.80 percent in September of 2014. Unemployment Rate in Greece was 25.70% in September of 2014 from 26% in August of 2014. Unemployment Rate in Greece averaged 14.4% from 1998 until 2014, reaching an all time high of 28% in September of 2013 and a record low of 7.30% in May of 2008. Unemployment Rate in Greece is reported by the National Statistical Service of Greece. Hence no job growth, no private investments, no circulation of capital and hence no government revenue.

The above data reflects two things one where it clearly shows the flaws within the government regarding the economic policies which has lead to this devastation and secondly how weak the government have been in management of capital. This is applicable for the entire Euro-Zone.

Further the austerity measures have also clipped the wings of the public investments which could have been able to bring growth for the economy. The below list depicts two things primarily that investments and entrepreneurship have been totally abolished as tax revenue have been increased and public participation in investments which could have been the biggest boost for the private have been eradicated. Further why it necessary for the Greece or Why Greece will move out for Euro-Zone is answered through the austerity measures adopted by the Greece for the bailout.

These are some of the austerity measures planned.

TAXATION

 Taxation

·         Taxes will increase by 2.32bn euros this year, with additional taxes of 3.38bn euros in 2012, 152m euros in 2013 and 699m euros in 2014.
·         A solidarity levy of between 1% and 5% of income will be levied on households. It will be raised twice next year.
·         The tax-free threshold for income tax will be lowered from 12,000 euros to 5000 euros, rather than the original plan of 8,000 euros.
·         There will be higher property taxes.
·         VAT rates are to rise: the 19% rate will increase to 23%, 11% becomes 13%, and 5.5% will increase to 6.5%.
·         The VAT rate for restaurants and bars will rise to 23% from 13%.
·         Luxury levies will be introduced on yachts, pools and cars.
·         Some tax exemptions will be scrapped.
·         Excise taxes on fuel, cigarettes and alcohol will rise by one third.
·         Special levies on profitable firms, high-value properties and people with high incomes will be introduced.
PUBLIC SECTOR CUTS
·         The public sector wage bill will be cut steadily to shrink it by more than 2bn euros by 2015.
·         Nominal public sector wages will be cut by 20%.
·         Wages of employees of state-owned enterprises will be cut by 30% and there will be a cap on wages and bonuses.
·         The number of civil servants to be suspended on partial pay will rise to 30,000 by the end of this year, from 20,000 planned initially. They will receive 60% of pay for one year, having been promised a job for life.
·         All temporary contracts for public sector workers will be terminated.
·         Only one in 10 civil servants retiring this year will be replaced and only one in 5 in coming years.

The biggest effect has been on the education segment which will have a long term effect on the generation as quality and availability dies off.

SPENDING CUTS
·         Defence spending will be cut by 200m euros in 2012, and by 333m euros each year from 2013 to 2015.
·         Health spending will be cut by 310m euros this year and a further 1.81bn euros in 2012-2015, mainly by lowering regulated prices for drugs.
·         Public investment will be cut by 850m euros this year.
·         Subsidies for local government will be reduced.
·         Education spending will be cut by closing or merging 1,976 schools.

They MIGHT get again bailout, stock market will rejoice across the globe but what about the citizens. In the last 2 years stock market grew through the bailout process but did it improve the economy. How increasing taxes and duties would improve business climate. People will close their shops cuts their investments. No education, poor quality of education, no jobs for young people-are we creating a Nation of cannibals who will be illiterate and will be of no use for the world economy in the long term.

Also, an overvalued common currency, the euro, has destroyed exports, foreign investments, tourism, shipping, and many other activities. The current trends—increase in taxes. rise of the value-added tax, reduction in wages, salaries, and pensions, weakening of the power of labor unions, reduction of subsidies, increasing the number of years for work, privatization of state-owned enterprises, and layoffs of public workers—the tremendous austerity, and many other measures are killing the economic growth of long term. Hence every time Greece gets a Bailout the economy slowly would come to an dead end. So Greece is left with no option rather than to go out of Euro-Zone. If Greece stays with Euro is will never find revival in its economy as austerity will only strengthen and will destroy the long term macro factors of growth.

Well now I am clear that why I fear a probable exit of Greece for Euro. What I need to pray is what is bothering me.

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