Perhaps, phknrocket1k. It is worth remembering that in 2000, the euro was under par for the dollar. Sam has been saying that it was going there since the early part of last year. The critical variable now may be German politics.
More details have been released on the rescue package, for which I have two questions. First, the details:
"Spending Cuts:
*Reducing the so-called 13th and 14th holiday payments for civil servants and cutting bonuses by a further 8 percent to save 1.1 billion euros in 2010. Workers earning less than 3,000 euros a month will get payments of 250 euros at Easter, 250 euros in summer and 500 euros at Christmas. Employees at state- run companies will have wages cut by 3 percent.
*Reducing the 13th and 14th holiday payments to pensioners to save 1.5 billion euros in 2010. Retirees receiving less than 2,500 euros per month will get 200 euros, 200 euros and 400 euros for each period.
*Postponing the second tranche of so-called solidarity bonuses to 2.5 million poorer Greeks, a pre-election pledge, to save 400 million euros in 2010.
*Cutting public investment plan by 500 million euros this year.
Revenue Raising:
*An increase in the two main sales-tax rates to 23 percent from 21 percent and to 11 percent from 10 percent. Thats equivalent to 800 million euros in 2010 and 1 billion euros in 2011.
*Cigarette, fuel and alcohol tax increases to raise 450 million euros in 2010 and 600 million euros in 2011.
Economic Forecasts:
*Economic contraction of 4 percent this year and 2.6 percent in 2011. Growth will return in 2012 at 1.1 percent and 2.1 percent in 2013 and 2014.
*Debt will rise from 133.3 percent of GDP this year to 145.1 percent in 2011, 148.6 in 2012 and peak at 149.1 percent in 2013. It is projected to fall to 144.3 percent in 2014.
*Budget deficit will shrink to 8.1 percent this year, 7.6 percent next year, 6.5 percent in 2012, 4.9 percent in 2013 and below the 3 percent demanded by the European Union in 2014."
------
This, of course, depends on numerous factors, including
1. The projections are accurate. Personally, I find them quite pessimistic, so the problem might not be here.
2. The Germans uphold their side of the deal, as noted above. I believe that a eurozone breakup would be a true calamity for Germans, because of the impact on the German banks and economy of a general euro crisis. However, it is up to Chancellor Merkel and the German political leadership to effectively communicate this to the legislators enough to push through the package.
3. The Greeks uphold their side of the deal. The Greek record of upholding austerity promises has not been historically good. They will need the IMF and the other eurozone members to police them closely and also have to rely somewhat on the integrity and genuine intentions of Papandreou.
Now, my questions
1. Prior to this last week, under the older, looser austerity package, Greece was supposed to have gotten its deficit down to 3 percent of GDP by 2012. Now, even though the additional revenue and cuts are proposed, this has been pushed back to 2014. The only explanation I can think of is the old projections were based on grossly unrealistic GDP expectations that have been pushed down by the recent crisis.
2. The article claims debt will fall as a percentage of GDP by 5 points in 2014; however Greece is still supposed to be running a deficit of just under 3 percent of GDP that year, and growth is only supposed to be 2 percent. Someone help me understand where the math adds up here.
On question 1:
The actual 2009 deficit has turned out to be far bigger than originally thought. Not 12%, but more like 14% or more. Thatīs why it`ll take longer to go down below Maastricht criterias again.
Once again I repeat: Cut your damn 6% of GDP defense spending, Greeks - instead of letting the ordinary small people bleed to death !! Itīs not like Turkey will attack you !!
