Wednesday, 14 November 2012

Additional Aid

It looks like Bild Zeitung has posted that German and French Finance Ministers Wolfgang Schäuble and Pierre Moscovici are considering a €44 billion installment to Greece, instead of the previous €31.5 billion. The reason is that Greece was expected to receive €31.2 billion in June. Further loans were to be paid out totaling €5 billion in the third quarter and €8.3 billion in the fourth quarter, but due to the Greek election and delays in implementing reforms, which delayed a report on Greece's progress in restructuring its economy, the loans have still not been paid out.

Pierre Moscovici. Source: Wikimedia Commons
Although from what Bild writes, this is not a "gift" of any kind, more like something the Greeks well deserved, it is a very positive development. Given that the majority of the €31 billion (a bit more than €20 actually) would have been used to recapitalize the Greek banks, having an additional €13 billion to use in order for the economy to grow would be a good idea. I just hope that the Greek Prime Minister is as good as I believe he is and will use the money appropriately (in contrast to how his predecessors were using the money).

For those of you wondering how the Greek government should use the money, if it ever gets them that is, the answer is obvious: promote public utility works like roads, (those who have been in Greece know that its road system is a mess) and other works which would bring the building industry to its feet, force the banks to restructure non-performing loans of small and medium businesses and support the businesses directly and most importantly, give incentives to the youth for starting new businesses. With youth unemployment reaching 55% there is little hope for the future if jobs are not created. For those saying that overall unemployment should be tackled first, I would like to remind you that public utility and debt-restructuring would do that. In addition, given that youths are more likely to spend in renting/buying apartments, general shopping and other consumption goods, it is obvious that as youth unemployment falls, more and more jobs will be created and thus both youth as well as overall unemployment will continue falling as well. What we should also bear in mind is that it takes much less money to promote new businesses than to support existing ones so it would be easier to implement it.

If Greece receives that money, it really needs to put it in good use. Generating more jobs will also increase government income and lower the debt/GDP ratio. Time will show that growth is much better than extreme austerity. Let us hope that the same fate does not await Cyprus and Portugal.

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