German economists seem to believe that Greece's burden of public debt will not be sustainable and fears of a Grexit are bound to resurface. To these bad news, they also add the sad forecast of a mere 0.8% growth in Germany during 2012 instead of the original 2%. On the bright side, unemployment in the EU27 and EA17 has not risen during August.
Although the whole of Europe indicates a stabilizing tendency in unemployment, individual countries are not doing so well. In Greece unemployment has risen by 7% over one year (June 2011 and June 2012), in Cyprus 3.7% (and they have not even officially signed the bail-out treaty), in Portugal 3.2% and in Spain 3.2% (to an astonishing 25.1%!). Greece and Spain were also declared champions of the youth unemployment with the percentage reaching 55.4% and 52.9% respectively.
Well, I guess when a quarter of your population is not employed and more than a half of your youths are unemployed things are going to get a lot worse. For this, we can blame the austerity measures imposed by Mrs Merkel. I do not know what they had in mind when she and the group of accountants and economists which formed the Troika decided that slashing expenses would be good to an economy. I guess not much. When GDP goes down, debt as a percentage of GDP goes up, even though it may not increase in absolute terms. Now the German economists are afraid for a situation which they have created themselves: Greece is going down and it is taking everyone with it. Even if Greece collapses with not many consequences (which I seriously doubt), Spain will not be so kind.
Over the second quarter EU27 and EU17 GDP have also been reduced by 0.1% and 0.2% respectively. This means that if the next statistics indicate that GDP growth is again negative, Europe will have officially entered recession. Thus, a problem which was (erroneously) considered to be an issue of the EU-periphery has taken an EU-wide dimension. This also makes me eager to see whether EU public debt has increased over the second and third quarters, an analysis which has yet to be published.
|Source: Wikimedia Commons|
What the German economists are now promoting is "orderly bankruptcy proceedings for member-states". Thanks guys, I guess you are very fond of European integration. This solution is of the kind "let them bankrupt I do not care". No form of solidarity in their statements whatsoever. I do not know if German economists ever think about the consequences (they obviously have not thought about them when austerity measures were pushed through in Greece; and are going to be implemented in Cyprus as well) however, if Greece goes bankrupt the effects will be harsh on Germany. Especially since the next one to go will be Spain.
Integration and not harsh measures are needed for us to steer clear of the crisis. Yet, what is being promoted are measures which do not assist in solidarity amongst nations. I guess this is the only time when politicians should be making more decisions than economists. At least they have the to worry about being re-elected. To whom are economists accountable for bad advice and forecasts? Nobody.