Wednesday, 17 October 2012

Troika's Strange Ideas

Talks about the new Greek austerity measures have been raging for over a month and a half now. It was the end of August when negotiations between Greek authorities and the Troika had began, and although things has come a long way since then, nothing has been formally agreed yet. It is said that the Troika wants the Greeks to proceed into slashing more wages, benefits and allowances. Yet, even though the Greek economy has been on life support over the duration of these negotiations and things can only get worse without the additional aid they have been promised, these talks do not seem to reach an end.

One cannot help but wonder whether it is the Troika's or the Greek's fault for this. Prolonged negotiations may be good for an organization already earning a substantial amount of money, nevertheless, they are not for a nation whose economy is getting weaker by the month. It is my understanding that the Troika has arguments on whether the allowance cuts proposed on this budget can be considered as new measures or they should be considered as part of earlier agreements. My question is what difference does it make? The point of the austerity measures is to make the Greek economy more competitive and eliminate the chance of bankruptcy. The important part is not whether allowance cuts are new or old, it is whether they are implemented or not. The Greek government has so far slashed everything: wages, salaries, pensions, allowances, benefits. The Troikans even wanted to slash allowances for people with disabilities. What the? Who proposes something like that? What are these people? Some kind of economic machines and they think only in €? I thought people like those only existed in movies. 

The Troika is missing it's target if it is just focusing on numbers and not reforms. In a country ridden by unemployment, (reaching 24.4% last quarter) you do not propose a lay-off of 3,000 government employees. Sure the government sector needs less people. Yet it does not have to happen now, it can be done gradually until 2020. Obviously, someone needs to keep an eye on them. Nevertheless, with the Greek accounts expected to reach a primary surplus over the next year, unless in a case of severe recession, the Troika does not need to cause that recession itself!

The idea of sticking to numbers and not having a look at what the consequences will be is like looking at a tree and missing the forest. The Troika is so focused on getting budget cuts that it does not see what changes need to be done. For example, the Cypriot government has issued counter-proposals, which, although they include severe wage cuts, they do not take into consideration the need for fiscal reform in the island. Not even one. And yet in pure monetary terms, the measures proposed by the Cypriot policymakers are harsher than the Troika ones. If the Troika representatives are really willing to assist a nation then they should insist on reforms and not just cuts. I am curious about their answer and I really hope that it doesn't take them a month to let us know.

P.S. Have a look at the unemployment rate in Spain over the last 37 years:
Source: Eurostat
Does something appear strange? Exactly. Unemployment in Spain had never been lower than 8% (and only lower than 10% in 3 years) and it has been growing rapidly since 2008. Now the million-euro question is this: Why wasn't anything done about unemployment since 2008? Or even 2010 when it reached 20%? I will let you decide on that.

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