Monday, 1 October 2012

Politics vs Economics: The South Combat

It looks like the Troika has changed their plans for Greece, as now the budget cuts and reforms have to reach €14 billion instead of the €11,9 which was the number about 2-3 weeks ago. (sigh) What will ever happen to those Greeks? It appears that even after chances for a Grexit has been significantly reduced (to the fact that almost no-one is considering this as a possible scenario) the probability of a Greek bankruptcy has not yet been diminished.

Der Spiegel reports that the Troikans are unimpressed by the progress Greece has undergone over the last year. Why would they be impressed need I ask? Except some budget cuts and reduction of wages and pensions, (of peculiar allowances, i.e. a benefit for arriving on time or a benefit for washing your hands!) nothing of importance has taken place in the country. No reforms whatsoever. The only positive is that the public sector is gradually shrinking in numbers, as it has become less attractive to the Greeks (well obviously if you cannot get an allowance for arriving on time why bother be in the public sector?!).

Greece is not the only nation which has similar problems. From what I hear, the leaders of Cyprus are proposing a plan under which they propose an increase in taxation instead of a reduction of public benefits. Really guys? So the solution, according to Cyprus's authorities is: "We are overspending. We know it. Why bother reducing expenses when this will make people turn against us? Why not just increase taxes which will not?" Really? 

I do not know how the Cypriots think about this, but in my opinion, every rational man would prefer to have benefits cut instead of ending up paying more in taxes. What should be done is better control of expenses and a taxation aimed specifically at the richer caste. A general increase in taxes would not benefit the public even if they maintain their benefits. 

Tax evasion is another thing: both countries (especially Greece) see their incomes reduced every year due to several well-off individuals who manage to somehow hide what they are earning. Although many steps have been made so far in this subject, and even more arrests have occurred (especially in Greece, I have not heard anything similar for Cyprus) the hole in public finances still looms. And this is one of the reforms that the South has to deal with.

The same situation more-or-less holds in Italy. Anti-tax evasion measures and reforms have not been implemented as of now, and thus many Italians are still dissatisfied with their government. Although Mario Monti is doing whatever he can to keep Italy from failing, he has not done anything in order to boost the public's confidence to their government, or to reduce tax evasion. 

Spain on the other hand, is worried that Mariano Rajoy's proclamations are merely theory and lack of action. While the government is trying to push through more austerity measures, the general public, fed up with increasing unemployment and no sign of their troubles ending, is protesting (quite rightly at times) for their lack of employment and in more severe cases their lack of money. 

Although the politicians are trying to implement mild budget and benefit cuts, in order not to lose the public's liking (which has been lost during the summer for most governments in the South) no-one has even tried to reduce unemployment in the region. With focus on austerity measures, no politician or policymaker seems to realize that an increase in the number of employed people would mean higher consumption, more taxes and even more savings so that the banks could lend. Yet it seems that the simple equation of how GDP is calculated and the simple logic of what a decrease in unemployment may do eludes the authorities of the South.

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