06 May, 2010

Greece and the euro 3

While Britain gazes at its electoral navel there are other things going on in the world. In Greece strikers took advantage of their free time to riot. Amidst further scenes of violence, which willl do nothing to help the country's credit rating, an attempt to blow up a bank left three of its employees dead.

One of the trade unionists interviewed said that she had heard that the IMF had mentioned Greece's military spending, the highest in Europe, but that the Papandreou government had refused to cut it. Nothing to do with the warship deal I posted about recently, I suppose?

The new IMF plan envisages Greece returning to some form of controlled spending by 2014 (and that assumes the people are going to allow it to happen). Greece has no access to the debt markets, it is now wholly dependent on its European partners, and the bail out will keep it going until 2012. Then it is all going to happen again. Then, if Greece's productivity doesn't improve relative to Germany's, in five years it will happen yet again.

The Eurozone either needs to be able to tighten the regulations, taking more political control over its members' budgets (moving towards a political union) or it needs to find some way to allow its constituents to default and restructure their debt without the whole pack of cards falling down. At the moment we are somewhere between the two.

Mind you some exporting countries (Oh, hi, Angela and Nico!) aren't too adverse to a lower euro; not to imply they would think selfishly and allow Greece to get worse.

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