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| Greece - Default ? |
| Uploaded by: NickTheGreek On: 11 Feb 2012, 11:47 PM |
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The memorandum with the troika that sealed the bailout to Greece has not proven enough to improve the economic situation within the country. In fact public debt has increased, as has unemployment, while aggregate demand has been reduced, which is reflected in the decrease in GDP with respect to last year.
The next payment of the bailout package to Greece is in June and given the above conditions the troika is not willing to give the money unless new austerity measures are taken by the Greek government (this already takes place). Hence what the troika basically demands is for Greece to insist on the same logic that permeated the memorandum, but this time with more intensity. Is this worth the try? Will Greece be saved if new stricter measures are taken?
The situation so far leads us to answer negatively to such questions as if we follow the way things were going with the measures taken under the memorandum we will see that the real economy in Greece was plunged into a deeper crisis for the sake of “avoiding default” (hence securing the creditors).
In the way things currently stand, I believe that it is better for Greece to default on its debt now rather than take new austerity measures, since I firmly uphold that either way default is inevitable. So it is better for the country to have it now rather than in one year, since the delay that will be achieved by the implementation of new measures will completely destroy the internal market as it will draw even more money out of the market.
The reason I say this is related to the way I see future recovery from the default. The real economy today will seem much better if compared to the economy that will come out of the new austerity measures. Thus it is only reasonable to conclude that recovery today will be relatively easier and faster than recovery in the future.
Today there still are some businesses standing and some sectors of the economy will be able to stand up, with the tourist sector being the most important, if Greece defaults now and readopts its national currency. Whereas if it stays under the memorandum at the expense of adopting stricter measures, it will eradicate those forces of the economy that are still alive, only to achieve a delay of the inevitable.
To recapitulate, if Greece defaults in the present, we will have a bankrupt state with a semi-bankrupt real economy, which is really bad but still not entirely catastrophic. Whereas if Greece takes new austerity measures and then defaults in the near future, we will end up with a bankrupt state and a completely broke economy which is by all means a far worse scenario.
So the way I see it there is no real dilemma here. It is only a matter of choosing the least worse scenario and a realistic approach is to declare default now rather than postpone it.
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