No #Recession In #Greece – Here’s Why

The economic conditions in Greece are the reality of living in the Euro system. The economic conditions are normal, it is not temporary and it is not due to a recession.oped_300

The Euro has meant Greece has all the negatives of having it’s own currency the Drachma but with none of the positives.

The positives are being able to inflate away debts and being able to print currency in order to satisfy government debt servicing.

While money printing is not the ideal solution, it is far better than increasing taxation which is what we have witnessed over the part 8 years.

The ironic aspect of the Euro crisis in Greece, is that it is the ECB that is being called upon to print money to “refinance bank balance sheets”.

The same money printing methods are being employed to bail out the Greek government with the Euro as was used with the Drachma.

Except the Greeks are not receiving any of the benefits of the money printing ie more cash in the Greek economy, as the cash is being siphoned off straight back into the core Euro area to pay off the banks that form the backbone of the ECB. At least during the Drachma, the central bank system was based in Greece, so where it members banks, so this is where the money ultimately stayed. In the Greek economy.

The Euro has not been some sort of magic wand for Greece. Being part of the Euro area has not changed anything, in fact it has made things much worse.

There appears to be a feeling in Greece that being part of the EU and the Euro will in some way reform the government, force the Greek government to govern with “European Standards” and for this reason, many Greeks, will not even entertain the possibility that going back the Drachma is the best idea.

Again, just because Greece is part of the Euro area, this does not on its own change the financial health of the country.

The government must become more efficient and less socialist in nature. Reforms of this type having nothing to do with whether or not the government is part of the Euro area or not.

In fact being part of the Euro area makes effective reforms even harder given the communist leanings of the EU Commission.

Being part of the Euro area also exasperates the problems because the EU Commission wants to sees its expansionist, socialist, utopian agenda succeed so they are doing everything they can to prop up the socialist government. Which makes reforms even less likely while at the same time compounding the problem making it harder to deal with in the future. We can see this with the Greek governments ballooning debt.

Some Greeks will say they were not a free people before the Euro, that capital controls constrained their economic freedom.

While this maybe true at least capital controls imply that there is actually capital to control, that there was money flowing through the economy.

The capital controls are still in effect, except now there is no need for capital controls as there is no longer capital in the Greek economy. It is being siphoned off through massive tax increases and the reduction in credit.

It has been said that Greece used to be a poor country with rich people, under the Euro system it is poor on both counts, at least compared to the economy under the Drachma.

Greeks need to understand that the country is not in recession. What they see is simply the reality of living under the Euro system. A Euro system in which the government has not adapted to.

No longer is the Greek government able to inflate away its obligations, the Euro, at least until recently, was a de-facto gold standard, Under a gold standard the governments need to make their economies self sufficient. They can only do this by making Greece competitive which quite frankly is easy.

Reduce taxation, reduce regulation and human ingenuity will do the rest.

But things are heading in the opposite direction with higher taxation and increasing regulations.

People living in Greece need to understand that it is not a recession problem in Greece but a Euro problem and fundamentally a big government problem. Only by understanding the problem can people form the correct solution.

The Euro membership is not a magic wand, the problems must be solved internally, external aid is only going to prolong the problems.

Either the government adjusts to the reality of living in a gold standard or it must exit the Euro.


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