Guest
07-04-2012, 10:04 PM
A big meeting between the "troika" of lenders which have been funding Greece's spending is scheduled for this week. The parties appear to be on a collision course. The newly-elected Greek socialist government campaigned on a platform of stopping the layoffs of government workers and slowing spending cuts.
Christine LaGarde, chairman of the International Monetary Fund, when asked whether she would be willing to review the terms that have been demanded as part of Greece's bailout said, "I'm not in the mood for either negotiation or re-negotiation". The representatives of the European Central Bank and the European Commission don't appear any more willing to loosen up on what has been demanded of Greece than the IMF.
Just to put things in perspective, Greece's annual spending totals about $77 billion. Their tax revenues, even after the hefty tax increase demanded by their lenders, brings in only about $54 billion, a 30% shortfall. (It's interesting to note that the U.S. has to borrow 42% of it's expenditures, a lot larger percentage of spending than Greece.)
The troika of lenders have the following demands on the table: the closure of all but the most necessary state agencies with the firing of all their government-paid workers, deep cutbacks in employment at other government agencies, deep cuts in both salaries and pension benefits, privatize state assets by selling them to outside interests to raise money to pay off debt, recapitalize its banks, overhaul its tax code and raise individual and corporate tax rates.
Overall, Greece is being told to identify $14.4 billion worth of further spending cuts to be accomplished in the next two years. That's about a 10% cut in spending, even though the Greeks already cut spending by more than 5% in the last year alone.
The result of the government spending cuts has been devastating on the Greek economy. Unemployment is above 21%, with more than half of those under age 25 unable to find work.
If the U.S. Congress doesn't start paying attention to fiscal reform and cutting government spending, this kind of reaction from those that lend to us to finance our government spending is inevitable. I don't want to be Chicken Little here, but all we need do is watch tiny Greece to see how our unwillingness to enact any kind of fiscal reform is likely to turn out.
Christine LaGarde, chairman of the International Monetary Fund, when asked whether she would be willing to review the terms that have been demanded as part of Greece's bailout said, "I'm not in the mood for either negotiation or re-negotiation". The representatives of the European Central Bank and the European Commission don't appear any more willing to loosen up on what has been demanded of Greece than the IMF.
Just to put things in perspective, Greece's annual spending totals about $77 billion. Their tax revenues, even after the hefty tax increase demanded by their lenders, brings in only about $54 billion, a 30% shortfall. (It's interesting to note that the U.S. has to borrow 42% of it's expenditures, a lot larger percentage of spending than Greece.)
The troika of lenders have the following demands on the table: the closure of all but the most necessary state agencies with the firing of all their government-paid workers, deep cutbacks in employment at other government agencies, deep cuts in both salaries and pension benefits, privatize state assets by selling them to outside interests to raise money to pay off debt, recapitalize its banks, overhaul its tax code and raise individual and corporate tax rates.
Overall, Greece is being told to identify $14.4 billion worth of further spending cuts to be accomplished in the next two years. That's about a 10% cut in spending, even though the Greeks already cut spending by more than 5% in the last year alone.
The result of the government spending cuts has been devastating on the Greek economy. Unemployment is above 21%, with more than half of those under age 25 unable to find work.
If the U.S. Congress doesn't start paying attention to fiscal reform and cutting government spending, this kind of reaction from those that lend to us to finance our government spending is inevitable. I don't want to be Chicken Little here, but all we need do is watch tiny Greece to see how our unwillingness to enact any kind of fiscal reform is likely to turn out.