FXStreet (Barcelona) – The Brown Brothers Harriman Team presents the case of Greece and austerity, and further comment on the creditors demand from the nation.
Key Quotes
“Just like Greece’s last minute decision to bundle its IMF payments was just as much a political signal as a financial one, senior European officials talking about a Greek exit is gratuitously provocative. When the rhetoric is stripped away, it comes down to a sequencing issue: debt relief and reforms.”
“As seems clear, austerity during contractions do not produce growth, but more contraction. One of the reasons that Spain’s economy is doing well is that it ended austerity. Pressure is likely to rebuild after the national elections at the end of the year. The timing of that pressure is political. Prime Minister Rajoy’s PP is part of the center-right that dominates European governments and institutions. On one hand, the IMF seems to recognize this. On the other hand, it is not allowing this recognition to alter its policies.”
“At the same time, it would be most helpful if Greece recognized that its multiple VAT rates and exemptions are not efficient. It also needs to recognize that its pension system is being used as unemployment insurance. Workers who are laid off (made redundant) are often offered early retirement.”
“Greece wants to boost demand. Its GDP has fallen by a quarter since the crisis. The creditors want to broaden Greece’s tax base to plug the pension hole for two reasons. One is obviously to enhance the chances of being repaid. The other reason is that the creditors would much prefer an economic successful Greece than a perpetual drag. If narrow financial calculations are pulling it apart, then larger political and geo-strategic considerations argue for a push back.”
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