The Greek Economy Is On Respirator: 21% Unemployment And a 5 Year Long Recession – Impossible To Keep Athens In The Eurozone
By Paolo von Schirach
August 10, 2012
WASHINGTON – I have argued in previous pieces (see link above) that the current 17 members strong eurozone will have to drop its weakest and most indebted members in order to stay viable as a monetary union. The optimists say instead that it is quite possible for the richer eurozone members led by Germany to keep providing loans and liquidity to the Southern members now going through a bad patch until they will be back on their feet and be once again capable to carry their own weight.
Greece in free fall
Well, I just do not think that this rosy scenario is possible. Recent Greek economic statistics reported in a WSJ piece, (Greek Unemployment a Record 23.1%, August 10, 2012), are truly horrifying. Indeed, Greek unemployment just hit 23.1%. (By comparison, consider that some think that America is headed towards terminal decline because its unemployment stays stubbornly at 8. 2%. If 8.2% is a disaster for America what is 21.1% for Greece?). As the WSJ reports, out of a total work force of about 5 million people, 1.15 million Greeks are out a job. Worse yet, youth unemployment is above 50%. Yes, that’s 50%.
And it gets even worse. In order to cut public spending and therefore its still massive debt, the Greek coalition government agreed with its EU-ECB-IMF creditors (“the troika”) to cut 150,000 public sector jobs by the end of 2015. This commitment includes eliminating at least 15,000 positions before the end of 2012. So, more misery added to disaster, assuming that the government will retain the political flexibility to shrink the bloated public sector without inviting social unrest and massive protests. Please remember that Greece has been in a recession for 5 years. The Greeks are really unhappy.
In all this, the small consolation for Athens is that Spain, the fourth largest eurozone economy (after Germany, France and Italy) has an even higher uenployment rate. So Greece is not the unemployment record holder.
Given this picture of economic and fiscal disaster, any plan to bring the weak eurozone members soon back into the fold, looks more and more like a dream. The eurozone was designed having in mind relatively wealthy countries run according to very strict fiscal rules of fiscal rigor and frugality. Well, the rules have been eroded up to the point of having been forgotten, while many Southern European countries are now incapable of generating enough wealth to stay ahead of their debt growth.
Germany will not pay for ever
The notion that Germany, with the help of some more liquidity to be provided by Mario Draghi of the European Central Bank, will be able fix this mess any time soon is plain nonsense. Likewise, the notion that Germany and the other more affluent Northern Europeans will continue to subsidize the weaklings of the South essentially for ever looks economically and politically more absurd as the debt crisis picture stays the same or gets even worse.
A new, streamlined eurozone
That said, at this point this becomes a political and leadership issue. It is really up to Germany and the other stronger members of the eurozone to take the lead and initiate a process that, however painful and full of uncertainty, should lead to a monetary union with fewer but reliable members.
The attempt to keep the current eurozone as is, no matter what (this the official policy to date) will turn out to be futile and it will further weaken Europe, leading it to a rapid demise.
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