Eurozone, Germany and rescuing Greece
The following is a post made to a thread on the Irish Economy Blog: Thinking the Unthinkable
1. The credit boom enabled many countries to live beyond their means; that scene has changed and the growth of the leading emerging economies will put further downward pressure on advanced country living standards, as conventionally measured.
In the US, the top 1% incomes captured half of the overall economic growth over the period 1993-2007. In the economic expansion of 2002-2007, the top 1% captured two thirds of income growth. The bottom 25% of the American population is poorer than they were 25 years ago.
In Japan, the household savings rate has fallen to almost 2% from about 15% in 1990; more than one-third of the workforce are temps earning less than the Irish minimum wage. Even the big companies such as Toyota hire a large number of temps on low wages and no pensions.
2. Most of the 16 Eurozone countries were prudently governed during easy money days and the ones under siege are authors of their own misfortunes.
3. Germany can be easily demonised by those with a begging-bowl mentality.
Eurostat reported yesterday that in March this year, Germany was the only EU27 economy to have lower unemployment than in March 2009.
It went through a painful reform process in the early years of the last decade and the SPD has paid a big political cost.
It has a large number of world class companies and mid-size family owned machine tools companies, many dating from the 19th century.
Germany became a net exporter in food and during in 2008 for the first time in the modern era.
In 2008, Germany exported to Greece goods worth €8.3bn. Germany was the biggest purchaser by far of Greek exports, accounting for nearly 10% (€1.9bn in 2008) of the total. The most important Greek exports to the Germany are textiles, petroleum products, tobacco, olive oil, fruit, cement, tomato products and aluminum. The principal Greek imports from Germany include motor vehicles, machinery and other technical products, petroleum and petroleum products, foodstuffs, as well as raw materials.
4. In 2009, the total value of Greek goods exports totaled €14.4 accounting for 6% of Greece’s GDP; imports fell to €48.1 from €60.7bn. Greece shipping accounts for about 60% of the EU shipping total and total exports were €55bn in 2008 or 23% of GDP; the current-account deficit is currently 13% of net national income.
5. Greece requires significant reform; tax evasion is extensive and 20,000 teachers are without classrooms. It needs to get serious about inward investment.
6. It is better to leave the issue of debt restructuring until the end of the 3-yr adjustment period when Europe can better handle it and Greece will likely be in better shape; to consider it now could trigger further pressure on other PIIG countries.
7. Greece has received €44bn in EU structural funds since 1994 and total EU transfers have exceeded 3% of GDP in recent years.
7. In the US, there is no bailout mechanism for states and no intergovernmental loans.