Weekend Economists Enumerate the Wealth of Nations, February 10-12, 2012

[Demeter]

17. Marshall Auerback: Greece and the Rape by the Rentiers

http://www.nakedcapitalism.com/2012/02/marshall-auerback-greece-and-the-rape-by-the-rentiers.html

Here’s the draft of the supposed agreement to “sort out” the Greek debt problem once and for all. According to Bloomberg, here are the essentials:

• Greece’s 2012 GDP will shrink by as much as 5%.

• Greece is expected to return to growth in 2013.

• Greece will cut 15,000 in state jobs in 2012.

• Minimum wage will be cut by 20 percent.

• There will be no increase to sales tax.

• The government will cut medicine spending will fall from 1.9% to 1.5% and merge all auxiliary pension funds.

• It will also sell stakes in six companies—in particular, energy companies and refineries.

Of course, the current thrust of fiscal policy will almost certainly guarantee that there still will be a default, involuntary or otherwise, in spite of this agreement. If you don’t have a mechanism to allow growth, then how can the Greeks service their debt, even with the reduced debt burden?

Perhaps that’s the idea. Make the deal so miserable for the Greek people that the Spanish, Portuguese, Irish and Italians don’t even begin to think of trying to get a similar haircut on their debt.

Certainly, the deficit reduction won’t come. It can’t when you deflate a rapidly declining economy into the ground. Common sense suggests that a drop in private income flows while private debt loads are high is an invitation to debt defaults and widespread insolvencies...