By Dr. George S. Atsalakis
The indebtedness of both households and companies along with their inability to repay their loans, created the economic crisis of 2007-2008 which initially led to growth reduction and then it was followed by recession. In order to prevent the recession many governments took measures (i.e. bank financing etc) so at to overcome the financial crisis as soon as possible. However, these measures to prevent recession have burdened state budgets and the direct consequence was the gradual alteration of the economic crisis to a crisis of state deficits. The accumulation of state deficits per year increased the total state debt and especially the debt of the southern countries of the euro-zone. The high public debts as well as the government deficits require drastic decisions to stop growing. However, in order to have immediate deficit reduction we should either reduce public expenditure or increase public revenue or both simultaneously. Both actions, though, lead to growth reduction and finally to recession. Growth reduction further reduces government revenue and expands to a higher degree the government deficits. This would require new spending cuts as well as new tax increases so as to curb or reduce deficits. But again these actions further reduce growth, so government revenue is reduced ……… new measures will be taken ……. and therefore, a «vicious» circle of permanent recession appears.
In order to reach the exit of this destructive circle, according to the Keynesian theory, some measures are required which will ensure that consumers will be able to buy and farmers, small crafts and industries will be able to produce so as development to come forth. Following this theory, recently German has increased the wages by 6, 5.The northern sound fiscal European countries have imposed on the indebted southern European countries, hard budget cuts which dramatically reduce the consumers’ disposable income, reduce the demands resulting in deeper recession, reducing thus further their ability to repay their debts getting away from any prospect of development.
The heavily indebted southern countries are not able any longer to use currency depreciation as a budgetary tool, since they no longer have national currency. In this way they do not have a single tool in their hands to help ensure that the consumers will be able to buy and the producers will produce so as to reach development. Since these countries do not have a financial tool to overcome recession, it is apparent that the only solution now is to delete a big part of the debt before the countries are forced to reach a debt moratorium and insolvency. In such a case, chaotic conditions in both economy and society will appear.
The extent deletions of the sovereign debt of the countries of the southern euro zone will cease the enterprises’ daily destruction as well as the citizen’s life which is the consequence of debt deleveraging through budget cuts. This is actually the only way that ensures that people will be able to buy and the enterprises will be able to produce so as these countries are led to development again. This will lead to further social peace in Europe, to stability and to the removal of the risk of Euro collapse. Moreover,
Europe will become more united and competitive in order to face the intense competition that stems from the emerging countries–China, India, Brazil, Mexico, Russia, Indonesia, Korea, Turkey etc. The countries’ indebtedness makes their economies vulnerable towards ‘a crisis of confidence’. In cases like these, the countries must save the commercial banks in order to save the deposits so as to continue to give loans. After that the commercial banks should save their countries by buying government bonds. Finally, the central banks need save both the commercial banks and the countries. This can be realized by issuing Eurobonds which will help buy problematic private and government loans mainly in the southern euro zone. The part of the capital that will not be paid by the borrowers will be deleted. For these loans that there is lack of money to be paid, they will not be paid in the end. Both lenders and borrowers will benefit by such a substantial debt deletion. In this way, the creditors take part of the responsibility since they have given the problematic loans. Naturally, in the process debt delete should be negotiated between all parties involved.
A glance at the table below that shows the financial conditions of Greece gives a hope for Greece after the partial deletion of the government debt, which however, was not enough to overcome the crisis.
| Sizes of the central Government according to the State Budget | ||||||
| Year | 2000 | 2003 | 2009 | 2010 | 2011 | 2012 |
| In billion € | In billion € | In billion € | In billion € | In billion € | In billion € | |
| GDP | 136,3 | 185,3 | 231,7 | 227,3 | 215,1 | 210,4 |
| Public debt | 139,2 | 177,8 | 299,68 | 329,5 | 355,6 | 262,7* |
| Debt % of GDP | 102,10% | 95,90% | 129,40% | 145% | 165,50% | 125,09% |
| Government Revenue |
36,5 | 39,2 | 50,5 | 53,9 | 53,7 | 56,1 |
| Public Expenditure |
40,1 | 49,5 | 86,6 | 77,4 | 73,3 | 70,2 |
| Public deficit | 3,4 | 10,3 | 36,1 | 23,5 | 19,6 | 14,1 |
| % deficit of GDP | (-2,8%) | (-5,9%) | (-15,6%) | (-10,3%) | (-9,1%) | (-6,7%) |
| Interest on loans | 9,9 | 9,4 | 12,3 | 13,2 | 16,3 | 13 |
| Primary Surplus
(without interest)
|
6,5 | (-3.7 ) | (-23,8 ) | (-8,1) | (-6,6 ) | 1,1 |
Source: State Budget – ELSTAT. Table ς: George Atsalakis. Year 2012 is a prediction.
*From the debt of 2011 the debt delete of 107 billion has been removed and the projected deficit of 2012 has been added. There is a possibility that the debt may increase due to the payment of the public debts to the suppliers.
The public debt dating back the establishment of the Greek government till 2000 reached the amount of 139, 2 billion. Its careless increase after the Olympic Games till 2009 by 122 billion along with the huge annual deficit of 36,1billion in 2009, created the «crisis of confidence» meaning that the country has reached the point where it collects 50 billion and spends 86, 1 billion, in other words it spends more than 70% compared to its revenues. The result was that Greece was no longer able to take loans with low interest rates, being forced, therefore, to resort to borrowing from Europe and IMF in order to face the high annual deficits and the payments of overdue debts.
The application of the adjustment program of the last 2 years has already resulted in deficit reduction from 36, 1 billion in 2009 to 19, 6 billion in 2011. The 2012 design shows a reduction to 14, 1 billion so as to bring primary surplus of 1, 1 billion. This aim is also assisted by the recent organized public dept delete by 107 billion, the lengthening of the time of payment as well as the lowering of interest rates. Here, however, there should be a 2-3 years time extension so as to achieve primary surplus and prevent people’s impoverishment.
This positive progress towards the achievement of primary surplus sets the basis for negotiating a more organized debt delete, which the European countries will be forced to decide de facto.
For Greece it is impossible from the 19,5 billion overall deficit in 2011 (interest included) to reach a surplus and repay the capital loan. Till today, the capital from the loans has not been returned yet, but instead new loans were taken to pay even the interests. Maybe after years Greece will be able to achieve to spend as much as the revenues. However, it will not be able to repay the capital loan. The fact that now the countries themselves are our main creditors makes a debt remission even easier.
A further debt delete of 80-100 billion makes the debt sustainable, eases the deficit allowing, then the Greeks to breathe by starting buying again and companies start producing and in this way growth comes. A part of Eurobonds should be allocated to finance long-term development projects which will have a multiple result to the economy. Additionally, another part should be given to cover temporary shortfalls that the elongation of achieving primary surplus will bring for 2-3 more years. Perhaps, towards to this direction, the change in the political scene in France has helped as well as the pressure from the large debt of Spain.
Undoubtedly, this new debt relief does not exempt us from the responsibility to acknowledge and remove those factors that can recreate debt. (if in 2010 there had not been taken immediate measures to reduce the deficit of 36,1 billion of 2009, the public debt alone, only to cover the annual deficit in 10 years that means till 2019, would reach the amount of 660 billion (10χ36,1=361 plus the debt of 2009, 299,68 billion 361+299=360 billion)).
A series of reforms should be realized for the effective functioning of the country, the economy (price cuts so as to regain the purchasing power of the households) and the society where hard work and capabilities will prevail and delinquency and arbitrariness will be punished. The following measures should be taken:
• Set aside the public and private professional co operations, which deliberately hinder the modernization of the country and the society, in order to defend their gains, at the expense, however, of the society which also drains money through legal tricks having embraced the biggest part of the public debt.
• Stop being governed by incompetent statist politicians, who are unable to make sound decisions for the benefit of the society leaving the problems unsolved. Today, more than ever, people are needed who have knowledge, organization skills, can take initiatives, and possess the ability to adapt and solve problems.
• Replace sinecure unions that close businesses and lead workers to unemployment with healthy ones.
• The public sector should correctly cost its expenditure, technical works etc so as to avoid being plundered by its suppliers.
• Change the existing culture of shots and minor effort in the public sector so as to liberate the citizens’ creative forces and stimulate entrepreneurship.
Many more reforms are considered necessary so as young people start producing and mainly create their own businesses. In this way they will be able to buy, as well and therefore the companies will be able to produce and employ young people who in turn will be able to buy, too and so on. By doing this, the previously mentioned destructive “vicious” circle will reverse and the devastation that the crisis has brought to Greece will convert to an opportunity to create a new Greece.
The political parties should stop talking in a manner that shows populism and exploits the desperation of week people especially the unemployed. All parties or at least most of them should sit at the same table and wisely design a strategy in coordination with other south-European countries, for a further public debt delete and a partial private debt delete. And of course, a committee of experts and wise people should design our own development program for the next twenty years, so as no one to be able again to impose new memoranda.
As one of the nations with the longest and brightest history on this planet that is the everlasting Greek culture, we deserve to be proud for our past. If we are taught by ancient Greek wisdom and change ourselves first and the way our country operates, our children will be able to continue being proud for our history, the existing crisis will become history and Greece will take the place it deserves in Europe.