The Greek Crisis – Is Austerity The Only Way?


Countless news releases this week have concluded that the Greek government needs to cut spending in a big way in order to head off a Greek default (and a Euro currency default). The way to achieve this end is through austerity measures that are targeting the cost of doing business in Greece (the people), believing that this will allow the economy to recover. It has been stated that the Greeks are not forced into having austerity measures, but this seems contrary to what most of the media have been saying recently. (7) Other solutions have been brought to the table, but have not emphasized in the latest debt negotiations (1) (5). The private banks who lent money to Greece are being asked to forgo profit on their bonds – but not lose their principle. Furthermore, the Troika (The European Central Bank, the International Monetary Fund and the European Union) are not taking any losses of any kind on their investments – be it principle or interest. (2) Isn’t it strange that someone working in Greece who is almost guaranteed to spend any money that given to them, is having money taken away from them, and being given to lenders who may or may not spend their money in Greece? This includes people making minimum wage and retirees. (4)(6) If consumption is the panacea for economic growth, wouldn’t it make sense to give people MORE money so they can spend it and have growth which would reduce the debt? There is a much more involved issue than spending only – but if you listen to what is being focused on in the media – more spending and more growth is supposed to be the net result of these austerity measures isn’t it? Other solutions have been suggested recently to solve this crisis, yet none of them seem to be getting heard. Maybe it is time for a new perspective. (3)(8)(9)(10)

Sources:

1)      http://www.bloomberg.com/news/2012-02-09/ecb-keeps-rate-at-1-as-focus-turns-to-role-in-greek-debt-swap.html

2)      http://www.bloomberg.com/news/2012-02-09/draghi-says-euro-area-economy-shows-signs-of-stabilization-.html

3)      http://www.bloomberg.com/video/85767144/

4)      http://www.bloomberg.com/news/2012-02-08/greek-bailout-talks-stall-on-pension-dispute-talks-to-resume-imminently.html

5)      http://www.bloomberg.com/news/2012-02-03/ecb-said-to-consider-ways-to-use-its-bond-holdings-to-bolster-greek-rescue.html

6)      http://www.marketwatch.com/story/greek-leaders-make-deal-ahead-of-euro-zone-meeting-2012-02-09

7)      http://www.bloomberg.com/news/2012-02-09/imf-says-it-s-not-forcing-austerity-on-greece-as-talks-continue.html

8)      http://www.bloomberg.com/news/2012-02-07/greek-officials-working-on-final-draft-to-meet-international-rescue-terms.html

9)      http://www.bbc.co.uk/news/business-13798000

10)  http://www.forbes.com/sites/timworstall/2011/06/16/explaining-the-greek-debt-crisis/

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About joetheinvestor
Joe Barbieri has Bachelors degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

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