Greece’s latest bit of austerity has been noted for its real estate tax tie, but it also includes the involuntary pay reduction of 30,000 public sector workers, and other cuts to pensions and wages. It could even lead to the early retirement or layoff of many at a time when family income has few sources. As a result, Greeks have fired up their torches for more protests, and the latest will close the country, as all transportation will be shut down (except for buses shuttling in protesters). Similarly, there is a great disconnect between austerity and economic restoral, and the plans of peripheral politicians and the wishes of Greeks on the streets of Athens.
When Greece embarked on this EU/IMF prescribed austerity, I immediately objected, and said it was a serious mistake that totally ignored the lessons of the Great Depression. Now, as Greece nears bankruptcy in a state of hobbled morale and with a busted bank book, I suppose some in government wish they had considered other options. Greece needed to also think about sustaining GDP along with the implementation of digestible systemic adjustments, not tax hikes, job cuts and creative missteps like the 25% tax on alcohol. How Greek politicians could not foresee that measures like these would fail is beyond me, but the failings of politicians are a universal norm these days. At least, though, the Greeks should have seen that taxes on alcohol and tobacco would lead to a black market boom. This oversight clearly illustrates how disconnected many Greek decision makers are from their countrymen on the street level.
Ronald Reagan is often considered an engineer and example of capitalistic perseverance and triumph through difficult times. He would not have given austerity even a second thought today. While he would have closed tax loopholes and addressed tax evasion, he also would have cut taxes and provided more incentive for business development, including in this case foreign driven opportunities. And while faced with pressure to oblige, he would have united Europe, in spirit and in government, so that the euro could withstand trouble, at least within its smaller constituents like Greece.
The reason this issue is so hard to solve is because of the disunity of this so-called European Union. Forcing swift acting austerity down the throats of recession burdened Greeks is the result of the impatience of Europe’s constituents. The EU/IMF required fast payback will be what finally does them in. A true union would look toward a feasible and phased in reorganization that would not push Greece into depression and its trading partners with it. But without one government, European leaders must return home to ask for the permission of their own angry taxpayers, and while political rivals stir up fodder for firestorm. Thus, the euro and the European Union were premature in their efforts and predestined to fail.
Another problem working against crisis mitigation today is the process the IMF and EU are so married to. Their public reviews of Greek progress have best served market speculators, and mostly resulted in higher borrowing costs for nations on the brink, but not yet fallen off the cliff. For as long as these firefighters approach the inferno in this manner, we all will get burnt.
Over the next several weeks, I will offer creative solutions to the Greek government and the European PIIGS-pen. But these ideas will only prove more useful than criticism, based on the ratio of readership, from decision-makers to revolutionaries.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.