There are four reasons why the Greek bailout will fail and Greece will leave the Euro:
In even starker terms, the Greeks have only one option in order to be able to compete within the European or world markets ..... massive wage cuts.
I remember at the time of entry into the Euro that the Greeks all hiked up their wages, and lost their competitiveness. The locals told me that they were entitled to be paid 'like Northerners' once they entered the Euro Zone. In the past, devaluations of the Drachma had always compensated for local wage inflation and brought competitiveness back, but now that didn't happen as the Euro was supported by the Germans.
By the time that they default, the Greeks may well have abandoned their own economy and banks to the foreigners who lent them money, and be the only people not hurt in the fallout ..... now that will be a trick worthy of Odysseus himself if they pull this off.
- After joining the euro in 2001, the Greek unit labour costs (a measure of wage competitiveness) have risen 32% compared with for example Germany i.e. They are paid like Germans but work like Greeks (which is the wrong way round).
- The Greek current account deficit - which is a broad measure of its trade deficit - is still running at 10% of GDP (total economic output) in the middle of last year i.e. The Greeks are buying 10% more than they sell and can't borrow to finance the shortfall.
- Greek households and companies withdrew 28% of the deposits they held in Greek banks in the three years to November last year, and this withdrawal rate has been accelerating. i.e. The Greeks are having a slow run on their own banks, as companies - and increasingly ordinary Greeks - take their money out in cash, or move it to the safety of a bank account in Germany or Switzerland.
- The Greek economy shrank 5.5% last year, and has shrunk a cumulative 12% since 2008. its predicted to shrink another 2.8% this year.
- That not only are things not getting better, but that even if they were, its not fast enough, and
- The Greek public are pulling out of their own economy, to put their money into Germany's (whilst also dodging even more Greek taxes, thus making the situation worse).
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| Only A Greek Hero Can Get Them Out Of The Mess! |
In even starker terms, the Greeks have only one option in order to be able to compete within the European or world markets ..... massive wage cuts.
I remember at the time of entry into the Euro that the Greeks all hiked up their wages, and lost their competitiveness. The locals told me that they were entitled to be paid 'like Northerners' once they entered the Euro Zone. In the past, devaluations of the Drachma had always compensated for local wage inflation and brought competitiveness back, but now that didn't happen as the Euro was supported by the Germans.
By the time that they default, the Greeks may well have abandoned their own economy and banks to the foreigners who lent them money, and be the only people not hurt in the fallout ..... now that will be a trick worthy of Odysseus himself if they pull this off.
