Does Greece has any chance?

Most of media and journalists are now concentrated on whether in Greece a new government will be created to implement the saving plan. But I think this is not the main question. The main question is if generally Greece has any chance of being saved. I don't think so. The entire Greek "reforms" are just an agony for both sides - Greece and its EU-partners pouring thousands of billions of Euros in the troubled country.

Greece is unable to make any reforms. Any reform there is just an imitation. Countries like Estonia and Ireland have made the needed spending cuts just in months time and after that the restart of the economy is already happening. In South Europe governments are just talking about reforms, but are doing nothing.

Greece can not survive in Euro zone. The problem of Greece is called "Euro". Country like Greece can not use a stable and hardly devaluated currency. The society is organized in a way that needs a money devaluation from time to time to erase the accumulated problems. Greek society has a very strong social fundament that presses the governments to be social. Ever the right parties in Greece are very left in their real policy. Greece is doomed to spend more money that it really can collect. That is the way of life there. So from time to time the artificially increased salaries and social benefits must be reduced by inflation. The accumulated debt must be devaluated by devaluating the currency in which it must be repaid.

With the old Drachma exactly this happened from time to time and as this happened by itself and not by any reforms implemented by force by the government, so the social unrest was weaker.

At the moment Greece is trying to erase the accumulated problems in a situation of very stable (yet) currency (Euro). This is impossible. The people have already voted against it. No parliamentary majority for reforms. But even in previous parliament, where New Democracy + PASOK together had about 2/3 of seats (constitutional majority), even then the reforms were palliative.

If now somehow Greeks find a 51% majority the new government will be weaker than the previous one. It will have stronger opposition and lower number of deputies. To this must be added that making reforms is a way to suicide you. The New Democracy party was fully destroyed after it accepted to support the bailout plan of EU and IMF. Before that this right party had about 40% support and on election it took twice lower. When accepting the bailout New Democracy has left the anti-bailout cause to the extreme opposition. That is the main reason for the success of so much new parties.

Generally even PASOK and New Democracy are not much keen on reforms due to the fact that this a suicide. So even if a government is somehow elected, it will do almost nothing.

Greece has no other chance than to leave the Euro-zone and re-establish the old easily devaluated Drachma. This way will be revived the instrument for erasing the accumulated policy mistakes. Without this tool Greece society simply can not exist.

Let me give you a simple example. Czech Republic has an export that is 7 times higher than the Greece export. The population is almost the equal. At the same time officially Greece is with higher living standard than Czech Republic. This must mean that Greece has an enormous internal consumption and production. But so small country can not base its economy on internal consumption and production. It simply has no enough resources and capacity to produce everything. Small economies must be export-import oriented. Without good export you can not have a strong and rich economy. So are the Greece economy and GDP real?

Greece has an artificial economy that needs a tool for correcting the illusions from time to time.

The situation in other countries like Spain and Italy is similar, although a little better. Such type of countries also need the inflation-devaluation tool as a compensation for missing other correction mechanisms.

May 13th 2012

Powered by