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Author Topic: Greek spending has actually been rising  (Read 4917 times)
Beet
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« on: August 19, 2011, 12:57:13 am »
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I just read the astonishing fact that Greek primary spending -- excluding interest payments -- has been rising this year. We have been told that Greece has been undergoing austerity. But it turns out that "subsidies to pensions" and unemployment insurance payments have caused a 4.5 increase in primary spending.

This obviously raises a question of how the IMF expects Greece to get out of its deficit, but it also raises a question of why the Greek economy is even shrinking. We are told Greece is in recession because austerity has cut government money out of the economy-- but the government is actually injecting more money into the economy. So why is Greece even in recession at all?

So not only is primary spending rising, but the inflation rate has been higher than Germany's, meaning Greek costs are not falling relative to Germany. I thought this entire bailout was supposed to be a gambit on internal devaluation?

Regardless of whether Greece restructures its debt, it should go into primary budget surplus immediately, operating as if it were on a balanced budget amendment. This means cutting whatever is needed to be cut.

Failing that, the other two options are for Greece's lenders to stop lending to it altogether, and force Greece to go int primary surplus immediately, or for them to lend to Greece like there is no tomorrow using printed money, in a bid to get Greek growth going again. Either option would work, but the present situation is untenable. Internal devaluation might have worked, but apparently that is not what is happening.

What is going on at the IMF? They have a legion of PhD economists there.
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Gustaf
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« Reply #1 on: August 19, 2011, 04:09:00 am »
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I just read the astonishing fact that Greek primary spending -- excluding interest payments -- has been rising this year. We have been told that Greece has been undergoing austerity. But it turns out that "subsidies to pensions" and unemployment insurance payments have caused a 4.5 increase in primary spending.

This obviously raises a question of how the IMF expects Greece to get out of its deficit, but it also raises a question of why the Greek economy is even shrinking. We are told Greece is in recession because austerity has cut government money out of the economy-- but the government is actually injecting more money into the economy. So why is Greece even in recession at all?

So not only is primary spending rising, but the inflation rate has been higher than Germany's, meaning Greek costs are not falling relative to Germany. I thought this entire bailout was supposed to be a gambit on internal devaluation?

Regardless of whether Greece restructures its debt, it should go into primary budget surplus immediately, operating as if it were on a balanced budget amendment. This means cutting whatever is needed to be cut.

Failing that, the other two options are for Greece's lenders to stop lending to it altogether, and force Greece to go int primary surplus immediately, or for them to lend to Greece like there is no tomorrow using printed money, in a bid to get Greek growth going again. Either option would work, but the present situation is untenable. Internal devaluation might have worked, but apparently that is not what is happening.

What is going on at the IMF? They have a legion of PhD economists there.

This is not about economics but about politics. Stupid politics at that.

Given the size of the Greek deficit I'm not sure the primary surplus even matters anymore. Especially since they won't reach it in the next couple of years anyway. If they're paying, say, 5% on a debt that is 200% of GDP that's 10% of GDP right there. That's a key reason why I don't see them getting out of their hole.
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« Reply #2 on: August 19, 2011, 05:10:55 am »
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Presumably the increase in spending is caused precisely by the fact that the Greek economy is shrinking - these are basic social payments to keep the poorest and unemployed from dying (after all it is a European country, so an American level of 'austerity' has been somewhat resisted).

Obviously the solution to this problem is 1) have the ECB buy up all the Greek debt with fiat money, and 2) institute the Euro-bond solution for future borrowing.
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« Reply #3 on: August 19, 2011, 05:43:52 am »
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Beet and Gustav,

From what I have seen, you both have some good points.

It seems to me that the Greek government is engaged in a massive farce to extract as much in subsidies from the rest of Europe before they go bankrupt.  The pretended 'austerity' in Greece is just a farce.

The sad thing is that it seems that Portugal, Ireland, Italy and Spain my end up getting screwed by the bad behavior of the Greeks.

The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.
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« Reply #4 on: August 19, 2011, 06:27:15 am »
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It seems to me that the Greek government is engaged in a massive farce to extract as much in subsidies from the rest of Europe before they go bankrupt.  The pretended 'austerity' in Greece is just a farce.

Predictable, inaccurate.
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« Reply #5 on: August 19, 2011, 06:43:08 am »
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2) institute the Euro-bond solution for future borrowing.

So that we Germans can pay even more?
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Gustaf
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« Reply #6 on: August 19, 2011, 07:12:55 am »
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2) institute the Euro-bond solution for future borrowing.

So that we Germans can pay even more?

I think that would be the general idea, yes. Wink
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« Reply #7 on: August 19, 2011, 08:13:06 am »
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2) institute the Euro-bond solution for future borrowing.

So that we Germans can pay even more?

While it is a bit wrongheaded to call it 'paying', and after all in the world of Greeks and Germans it is the Germans who are the privileged, relatively speaking, the obvious point to you, Franzl, is what the devil are you Germans doing in the Euro if you don't want to deal with this sort of thing?
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Gustaf
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« Reply #8 on: August 19, 2011, 09:05:39 am »
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2) institute the Euro-bond solution for future borrowing.

So that we Germans can pay even more?

While it is a bit wrongheaded to call it 'paying', and after all in the world of Greeks and Germans it is the Germans who are the privileged, relatively speaking, the obvious point to you, Franzl, is what the devil are you Germans doing in the Euro if you don't want to deal with this sort of thing?


The Germans were forced into the Euro in exchange for French support for unification. The German people has never wanted the Euro.
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« Reply #9 on: August 19, 2011, 10:38:08 am »
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The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.

I agree with this.
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« Reply #10 on: August 19, 2011, 11:18:15 am »
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The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.

I agree with this.

I agree with this as well. Greece should be suspended from the Eurozone as long as they have their budget and foreign debt consolidated and implemented several reforms, such as imposing a tax/budget discipline similar to the German/Austrian/Swiss/Dutch/Swedish etc. one, cracking down hard on corruption and work loopholes, cutting their military expenditures to 1% of GDP instead of 6% like it is now, strong reforms in their school/university system that's completely inefficient and incompetent and producing 50% youth unemployment. Further, they should sell their islands and government property to repay the debt to other countries and reform their pension system that favors big bonuses for government workers and even pays out pensions to dead people.
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« Reply #11 on: August 19, 2011, 12:06:59 pm »
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Beet and Gustav,

From what I have seen, you both have some good points.

It seems to me that the Greek government is engaged in a massive farce to extract as much in subsidies from the rest of Europe before they go bankrupt.  The pretended 'austerity' in Greece is just a farce.

The sad thing is that it seems that Portugal, Ireland, Italy and Spain my end up getting screwed by the bad behavior of the Greeks.

The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.

The farcical thing is how the rich in Greece don't pay taxes.  It's interesting that spending on teachers and health care for the poor has been attacked but the fact that the rich don't pay their fair share has been totally ignored.  Remind you of another country?
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« Reply #12 on: August 19, 2011, 12:08:49 pm »
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The Germans were forced into the Euro in exchange for French support for unification. The German people has never wanted the Euro.

Haha, well if that is the case then the situation is truly hilarious.  Revenge is a dish best served cold, took almost 70 years but there it is.
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« Reply #13 on: August 19, 2011, 03:59:18 pm »
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The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.

I agree with this.

I agree with this as well. Greece should be suspended from the Eurozone as long as they have their budget and foreign debt consolidated and implemented several reforms, such as imposing a tax/budget discipline similar to the German/Austrian/Swiss/Dutch/Swedish etc. one, cracking down hard on corruption and work loopholes, cutting their military expenditures to 1% of GDP instead of 6% like it is now, strong reforms in their school/university system that's completely inefficient and incompetent and producing 50% youth unemployment. Further, they should sell their islands and government property to repay the debt to other countries and reform their pension system that favors big bonuses for government workers and even pays out pensions to dead people.

A very good analysis, with excellent recommendations.

What I am afraid of is that Portugal, Ireland, Italy and Spain may be unfairly punished for the antics of Greece.

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« Reply #14 on: August 20, 2011, 05:24:53 am »
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The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.

I agree with this... Greece should be suspended from the Eurozone as long as they have their budget and foreign debt consolidated and implemented several reforms, such as imposing a tax/budget discipline similar to the German/Austrian/Swiss/Dutch/Swedish etc. one, cracking down hard on corruption and work loopholes, cutting their military expenditures to 1% of GDP instead of 6% like it is now, strong reforms in their school/university system that's completely inefficient and incompetent and producing 50% youth unemployment. Further, they should sell their islands and government property to repay the debt to other countries and reform their pension system that favors big bonuses for government workers and even pays out pensions to dead people.

Um, why would they do all that stuff if they're not going to be bailed out?  The incentive to do all that draconian counter-productive stuff is the bail-out.  If you aren't going to be bailed out and are going to be suspended from the Euro, you just default.  Christ it would be stupid to sell off things you own to pay a debt you can simply repudiate.
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« Reply #15 on: August 22, 2011, 10:39:29 am »
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The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.

I agree with this... Greece should be suspended from the Eurozone as long as they have their budget and foreign debt consolidated and implemented several reforms, such as imposing a tax/budget discipline similar to the German/Austrian/Swiss/Dutch/Swedish etc. one, cracking down hard on corruption and work loopholes, cutting their military expenditures to 1% of GDP instead of 6% like it is now, strong reforms in their school/university system that's completely inefficient and incompetent and producing 50% youth unemployment. Further, they should sell their islands and government property to repay the debt to other countries and reform their pension system that favors big bonuses for government workers and even pays out pensions to dead people.

Um, why would they do all that stuff if they're not going to be bailed out?  The incentive to do all that draconian counter-productive stuff is the bail-out.  If you aren't going to be bailed out and are going to be suspended from the Euro, you just default.  Christ it would be stupid to sell off things you own to pay a debt you can simply repudiate.

Opebo,

The simple truth is that what is going on in Greece is a farce.

The Greek government is NOT taking real steps to deal with their fiscal irresponsibility.

They are just play-acting.
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« Reply #16 on: August 22, 2011, 01:54:09 pm »
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Opebo,
The simple truth is that what is going on in Greece is a farce.
The Greek government is NOT taking real steps to deal with their fiscal irresponsibility.
They are just play-acting.

Well, that is encouraging if true.
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« Reply #17 on: August 24, 2011, 12:39:28 am »
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The European community would be better off to isolate Greece and instead concentrate on helping the other countries in financial straights that are at least making some real efforts to deal with their problems.

I agree with this.

I agree with this as well. Greece should be suspended from the Eurozone as long as they have their budget and foreign debt consolidated and implemented several reforms, such as imposing a tax/budget discipline similar to the German/Austrian/Swiss/Dutch/Swedish etc. one, cracking down hard on corruption and work loopholes, cutting their military expenditures to 1% of GDP instead of 6% like it is now, strong reforms in their school/university system that's completely inefficient and incompetent and producing 50% youth unemployment. Further, they should sell their islands and government property to repay the debt to other countries and reform their pension system that favors big bonuses for government workers and even pays out pensions to dead people.

It is a tough love approach, but it is ultimately correct.
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« Reply #18 on: August 24, 2011, 04:18:34 am »
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It is a tough love approach, but it is ultimately correct.

Haha, yes.  Not only are national budgets of sovereign nation-states exactly like your own personal budget, their relationships with one another are exactly like that of a stern father and errant child.  Good luck with the over-simplification and mis-direction.
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Landslide Lyndon
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« Reply #19 on: August 24, 2011, 05:06:12 am »
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Sorry but I didn't see this topic earlier.

1)The spending rising is a combination of a deeper recession that forces increased safety net spending and the unwillingness of certain parts of the administration to tighten their belts.
It's disappointing and frustrating but somewhat expected. Going cold turkey after decades of profligacy was never going to be easy, especially when large parts of the society and the political world refuse to accept reality and demagogue like it's the 90's (even the conservative parties).
Also the fact that our constitution says that civil servants are permanent employees that can't be fired makes our choices even more limited when it comes to scaling down our public sector.

2)Ousting Greece out of the Eurozone will only make matters worse as it will show to other EU countries that the concept of European Solidarity is just empty words and that if they fall in difficult times, the great powers will have no qualms to do the same to them. Needless to say that will mean the end of EU as a legitimate organization that can influence world policy (even though I understand that many people here don't see anything wrong with that).

3)Cutting military expenditures is an excellent solution. There is only one problem with that: Germany and France vehemently oppose such a measure. The reason? We are one of the best clients of their military/industrial complexes.
When our prime minister visited Merkel and Sarkozy, it was really hilarious seeing them advising a strict austerity plan and at the same time lobbying for even more german and french weapon purchases by our army.

4)If the Eurobond means Germany paying more, then so be it. You can't pretend to be the boss and when time comes to fulfill your responsibilities to start whining about how hard is your job. Germany didn't have a problem when greek banks borrowed money which Greeks used to buy German goods or when the adoption of Euro led to skyrocketing exports and its commercial surplus. 
And the idea that Germany didn't want the Euro is about as credible as the conspiracy theories about Obama's birth certificate.
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« Reply #20 on: August 24, 2011, 05:26:37 am »
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Lyndon,

You raise a number of interesting points.

First, I want to thank you for being honest about the "unwillingness of certain parts of the administration to tighten their belts."  Actually, I would say almost all of the government in my estimation is unwilling to engage in belt tightening.

Second, you are very correct that after a lengthy period of profligacy, it isn't easy to adopt reasonable economic policies.  In the United States we're going through a similar problem with people like Obama refusing to accept reality, and engaging in demagoguery.

Third, if the Greek government were to act in good faith it would amend the constitution to remove the provision making government employees "permanent" who "can't be fired."

Fourth, its not that people want to stop subsidizing Greece because they have falling "in difficult times," but rather that the Greek government is NOT taking the necessary steps to address their financial predicament, while other governments in Europe with similar problems are taking those steps.  The simple principle is that if you refuse to help yourself, there is NO reason others should try to help you.

Fifth, you are quite correct that Greece can and should significantly cut military expenditures.

Sixth, yes the Germans made some big mistakes themselves in believing they would seduce other countries to act like Germans.  When Greek goes bankrupt, a number of German banks will take a hit for the stupid loans they made to Greece.

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« Reply #21 on: August 24, 2011, 05:45:09 am »
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Our constitution was amended during the 2006-08 period and can be amended again only 10 years after its last modification(2016). Even so, I highly doubt that any government would dare to change that particular article.
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« Reply #22 on: August 24, 2011, 05:56:45 am »
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Our constitution was amended during the 2006-08 period and can be amended again only 10 years after its last modification(2016). Even so, I highly doubt that any government would dare to change that particular article.

Thank you for that information.

However, I fail to see why the rest of Europe should pay for such a policy.
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« Reply #23 on: August 24, 2011, 07:51:47 am »
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Sorry but I didn't see this topic earlier.

1)The spending rising is a combination of a deeper recession that forces increased safety net spending and the unwillingness of certain parts of the administration to tighten their belts.
It's disappointing and frustrating but somewhat expected. Going cold turkey after decades of profligacy was never going to be easy, especially when large parts of the society and the political world refuse to accept reality and demagogue like it's the 90's (even the conservative parties).
Also the fact that our constitution says that civil servants are permanent employees that can't be fired makes our choices even more limited when it comes to scaling down our public sector.

2)Ousting Greece out of the Eurozone will only make matters worse as it will show to other EU countries that the concept of European Solidarity is just empty words and that if they fall in difficult times, the great powers will have no qualms to do the same to them. Needless to say that will mean the end of EU as a legitimate organization that can influence world policy (even though I understand that many people here don't see anything wrong with that).

3)Cutting military expenditures is an excellent solution. There is only one problem with that: Germany and France vehemently oppose such a measure. The reason? We are one of the best clients of their military/industrial complexes.
When our prime minister visited Merkel and Sarkozy, it was really hilarious seeing them advising a strict austerity plan and at the same time lobbying for even more german and french weapon purchases by our army.

4)If the Eurobond means Germany paying more, then so be it. You can't pretend to be the boss and when time comes to fulfill your responsibilities to start whining about how hard is your job. Germany didn't have a problem when greek banks borrowed money which Greeks used to buy German goods or when the adoption of Euro led to skyrocketing exports and its commercial surplus. 
And the idea that Germany didn't want the Euro is about as credible as the conspiracy theories about Obama's birth certificate.


You're unaware that Germany has never been keen on the Euro? I don't see it as a conspiracy theory, to be honest.

And adoption of the Euro did not lead to skyrocketing exports in Germany. Maybe you should check German growth figures during the first years of the Euro. They weren't good. Germany took painful measures during the early years of this decade to increase competitiveness and they are now reaping the benefits of that.
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« Reply #24 on: August 24, 2011, 02:12:33 pm »
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Hmm...seems like there's another big problem in Greece that I don't see mention of in this thread.

Quote
“The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year—which meant, because incomes below that amount weren’t taxable, that even plastic surgeons making millions a year paid no tax at all. The problem wasn’t the law—there was a law on the books that made it a jailable offense to cheat the government out of more than 150,000 euros—but its enforcement. ‘If the law was enforced,’ the tax collector said, ‘every doctor in Greece would be in jail.’ I laughed, and he gave me a stare. ‘I am completely serious.’ One reason no one is ever prosecuted—apart from the fact that prosecution would seem arbitrary, as everyone is doing it—is that the Greek courts take up to 15 years to resolve tax cases. ‘The one who does not want to pay, and who gets caught, just goes to court,’ he says. Somewhere between 30 and 40 percent of the activity in the Greek economy that might be subject to the income tax goes officially unrecorded, he says, compared with an average of about 18 percent in the rest of Europe.

http://www.ritholtz.com/blog/2011/05/kicking-the-can-to-the-end-of-the-road/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
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