What should greece do 2011

The austerity measures required Greece to improve how it managed its public finances. It had to modernize its financial statistics and reporting. It lowered trade barriers, increasing exports. Most importantly, the measures required Greece to reform its pension system.

Pension payments had absorbed It also required a higher pension contribution by employees and limited early retirement. Half of Greek households relied on pension income since one out of five Greeks were 65 or older. The austerity measures forced the government to cut spending and increase taxes. That reduced the tax revenues needed to repay the debt.

The political system was in upheaval as voters turned to anyone who promised a painless way out. The results are mixed. In , Greece ran a budget surplus of 0. In , Greece announced its budget deficit would be That scared off investors and raised the cost of future loans.

Greece attempted to reassure the EU lenders it was fiscally responsible. Just four months later, Greece instead warned it might default. The EU and the International Monetary Fund provided billion euros in emergency funds in return for austerity measures.

The loans only gave Greece enough money to pay interest on its existing debt and keep banks capitalized. The EU had no choice but to stand behind its member by funding a bailout. Otherwise, it would face the consequences of Greece either leaving the Eurozone or defaulting.

Austerity measures required Greece to increase the VAT tax and the corporate tax rate. It had to close tax loopholes. It created an independent tax collector to reduce tax evasion. It reduced incentives for early retirement. It raised worker contributions to the pension system. At the same time, it reduced wages to lower the cost of goods and boost exports. The measures required Greece to privatize many state-owned businesses such as electricity transmission.

That limited the power of socialist parties and unions. Why was the EU so harsh? EU leaders and bond rating agencies wanted to make sure Greece wouldn't use the new debt to pay off the old. Germany, Poland, Czech Republic, Portugal, Ireland, and Spain had already used austerity measures to strengthen their own economies.

Since they were paying for the bailouts, they wanted Greece to follow their examples. Some EU countries like Slovakia and Lithuania refused to ask their taxpayers to dig into their pockets to let Greece off the hook. These countries had just endured their own austerity measures to avoid bankruptcy with no help from the EU.

In , the European Financial Stability Facility added billion euros to the bailout. Despite the name change, that money also came from EU countries. The government successfully sold bonds and balanced the budget.

In January , voters elected the Syriza party to fight the hated austerity measures. On June 30, , Greece missed its scheduled 1. Both sides called it a delay, not an official default.

Two days later, the IMF warned that Greece needed 60 billion euros in new aid. It told creditors to take further write-downs on the more than billion euros Greece owed them. On July 5, Greek voters said "no" to austerity measures. The instability created a run on the banks. Greece sustained extensive economic damage during the two weeks surrounding the vote.

Banks closed and restricted ATM withdrawals to 60 euros per day. It threatened the tourism industry at the height of the season, with 14 million tourists visiting the country.

The European Central Bank agreed to recapitalize Greek banks with 10 billion euros to 25 billion euros, allowing them to reopen. Banks imposed a euros weekly limit on withdrawals. That prevented depositors from draining their accounts and worsening the problem. It also helped reduce tax evasion. People turned to debit and credit cards for purchases. As a result, federal revenue increased by 1 billion euros a year.

On July 15, the Greek parliament passed the austerity measures despite the referendum. Otherwise, it would not receive the EU loan of 86 billion euros. It lengthened the terms, thus reducing net present value. Greece would still owe the same amount. It could just pay it over a longer time period.

The United Kingdom demanded the other EU members guarantee its contribution to the bailout. On September 20, Tsipras and the Syriza party won a snap election. It gave them the mandate to continue to press for debt relief in negotiations with the EU. However, they also had to continue with the unpopular reforms promised to the EU. In November, Greece's four biggest banks privately raised The funds covered bad loans and returned the banks to full functionality.

Almost half of the loans banks had on their books were in danger of default. Bank investors contributed this amount in exchange for the 86 billion euros in bailout loans. The economy contracted 0. In March , the Bank of Greece predicted the economy would return to growth by the summer. It only shrank 0. They were reluctant to call in bad debt, believing that their borrowers would repay once the economy improved. That tied up funds they could have lent to new ventures. It planned to use the funds to pay interest on its debt.

Greece continued with austerity measures. The ECB says Greece will get nothing if they default. The EU says that to get money the Greeks must make even deeper cuts, while a soon-to-be-completed audit will show they are in worse shape rather than improving. The Greeks have an obscure minister who is not part of the government say they might leave the euro.

The IMF says they may not fund without further commitments from the euro members, which are going to be tough to get from Germany and Finland, at the least. The German government has been proposing to fill Greece's finance gap without providing more loans, by asking holders of Greek bonds maturing in the next couple of years to agree to postpone their repayments.

Since the IMF is providing only around a quarter of the funding, the euro zone's existing commitments alone would tide Greece over for a few months as European leaders debate additional financing. Many believe if something gives, it will be the ECB. I believe that the ECB's threat of leaving Greek bonds out … is not something it will actually carry through.

Kapoor said. Brinkmanship indeed. It is not pleasant reading if you pay taxes in Europe. Especially if you are German. The guardian of the single currency has taken on billions of euros worth of risky securities as collateral for loans to shore up the banks of struggling nations. The central banks have distributed large sums to their countries' financial institutions to prevent them from collapsing. They have accepted securities as collateral, many of which are — to put it mildly — not particularly valuable.

When banks in Ireland go bankrupt and their securities aren't worth enough, the euro countries must collectively account for the loss. Germany's central bank, the Bundesbank, provides 27 percent of the ECB's capital, which means that it would have to pay for more than a quarter of all losses.

Andrew Lilico, writing in the London Telegraph, gives us the answer to that question with a series of short bullet points. I might not agree with all of them, but he is looking in the right direction. Because the ECB has relatively little foreign currency-denominated exposure, it could in principle print its way out, but this is forbidden by its founding charter. By the time they are finally heard, no one will care. Or the EU can kick the can down the road yet another time, as many mainstream candidates expect.

The ECB will blink. Nouriel Roubini has outlined a very clear plan for restructuring. It is not without pain, but there are ways, if they can join what Greg Weldon calls a twelve-step plan for European bankers to deal with reality.

Sidebar: for the record, there are reportedly massive bank runs in Greece, especially on large uninsured deposits. It is hard to understand how people can ignore what I think are clear warning signs, but the following analysis shows us the process. My good friend and early mentor Dr. Gary North wrote a poignant piece in his Reality Check letter today about ignoring the signs of pending problems.

I insert it here as the launching point for the close of the letter. On 30 January, Hitler became Chancellor. He asked Hindenburg to dissolve the government and schedule new elections for March 5, which Hindenburg did. Maybe not.

Maybe after the next election, the Nazis would have been defeated. One man did it, who admitted he had done it. Hitler immediately identified him as a Communist, although even today, it is not clear that he did anything but act alone. The Nazis did not have a majority.

They had only a coalition majority. It took a two-thirds vote to do this. Hitler now possessed dictatorial powers. He had attained these by means of support by rival political parties. Was it time to pack those bags? This was not government-directed. It was only symbolic.

They made it illegal for Jews to be citizens. But that was only politics. How many votes did Jews have, anyway? Politics isn't everything. Between and , about half the Jews in Germany emigrated: , But half did not. He looked at the map. He concluded that the Nazis would wind up running Austria. Hitler was an Austrian, and he would want to control Austria. He packed his bags and took his first salaried teaching position, a job in Geneva, Switzerland.

He warned Jewish friends to get out. Economist Gottfried Haberler did, in Economist Fritz Machlup already had. He fled in Well, not quite. He was in the United States in , and he decided not to return to Austria. Both men found safe havens in the United States.

So did Mises in , when he left Switzerland, barely escaping German troops in France as he and his wife road a bus toward Spain, and from there to Portugal and the United States. The gun was loaded. Then the hammer was cocked in March: the Enabling Act. They shall take effect on the day following the announcement, unless they prescribe a different date. Articles 68 to 77 of the Constitution do not apply to laws enacted by the Reich government.

The language was so procedural. But there was substance to it. Much of this lack of revenue was the result of systematic tax evasion. Generally, self-employed , wealthier workers tended to under-report income while over-reporting debt payments. The prevalence of this behavior reveals that rather than being a behind-the-scenes problem, it was actually more of a social norm that was not remedied in time.

Eurozone membership helped the Greek government to borrow cheaply and to finance its operations in the absence of sufficient tax revenues. Compared to Germany, Greece had a much lower rate of productivity , making Greek goods and services far less competitive. The adoption of the euro only highlighted the competitiveness gap as it made German goods and services relatively cheaper than those in Greece.

Having given up independent monetary policy Greece could no longer devalue its currency relative to that of Germany. While the German economy benefited from increased exports to Greece, banks, including German banks, benefited from Greek borrowing to finance cheap imported German goods and services.

As long as borrowing costs remained relatively cheap and the Greek economy was still growing, such issues continued to be ignored. In , U. As capital began to dry up, Greece faced a liquidity crisis , forcing the government to seek bailout funding, which they eventually received with staunch conditions. Bailouts from the International Monetary Fund and other European creditors were conditional on Greek budget reforms, specifically, spending cuts and higher tax revenues. These austerity measures created a vicious cycle of recession with unemployment reaching These measures, applied amidst the worst financial crisis since the Great Depression , proved to be one of the largest factors attributing to Greece's economic implosion.

Austerity measures also created a humanitarian crisis: homelessness increased, suicides hit record highs , and public health significantly deteriorated. While Greece had structural issues in the form of corrupt tax evasion practices, Eurozone membership allowed the country to hide from these problems for a time but ultimately created an economic straitjacket and an insurmountable debt crisis evidenced by the country's massive default.

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