Unfortunatly, this country only has bad options to solve this crisis. But the least bad alternative for Greece, is an ordely resstruction of greek's debt, as soon as creditors are better prepared to deal with this shock.
Greece has also the problem of a very small tax net and a large informal economy. Because of that, is very unlikely that Greece can make an unsuspected tax windfall, and alter this conclusion.
The Greeks problems began before the establishment of euro. In that period, Greece has one of the worst economic performances of all Euro area members: high inflation, the slowest GDP growth, and the highest borrowing premium to pay.
With the adoption of the euro, many of these problems seems to be solved. Now, Greece was more attractive to the FDI.
Capital became more cheaper, the domestic demand rose and all this confidence led to an increase of public deficit from 3.7 percent of GDP in 1997 to 14.4 percent in 2008.
With the growth of domestic demand, the prices increased to the Euro-area average, leading to a increasing in domestic labor costs and a decline in Greek competitiveness.
Also since 1997, both the consumer prices and the por capita employee compensation increased more than the Euro-area average.
The issue of competitiveness has been aggravated with the expansion of non-tradable sectors of the economy at the expense of the tradable sectors.
But, this period hadn't only bad aspects: the Greek economic received also benefits. Betwen 1997 and 2007 Greek economy growth was one of the highest in all Euro-area. And, because of tax revenues increase, the Government rapidly increased its spending, specialy in public sector wages and social transfers (unlike what happened in western Europe). At the same time, public deficits remained high and justifiable. Unfortunatly, this good scenario changed when the global financial crisis started and when markets realized that Greece could not meet its financial commitments.
Worries about Greek capacity to repay its loans rapidly spread throughout all troubled South Europe Countries.
The situation came to the extreme of Greece has the need receive external financial aid from EU and IMF.
This aid had the objective of restructuring the debt and the economic struture.
For Greece receive the aid program, was established an agreement between the creditors and the Greek government. This agreement consists on:
-reduction of debt-GDP ratio by 2013 due to fiscal policy adjustements, and decrease of government deficit below 3 percent of GDP by 2014.
The total adjustement, with an impact of 11 percent on GDP, is composed by: reductions in spending of 5.3 percent of GDP, tax increases in order of 4 percent and an increased in 1.8 percent of GDP thanks to strutural reforms.
- those structural reforms want to enhance government produtivity and transparency, increase the wage flexibility in the private sector and the improvement on good business climate and competitiveness among Greek firms.
- the government problems also affected the financial sector, that had big problems to acess to international markets. The aid also be focused in the banks capitalization.
The big concern about Greece is the alck of liquidity: any improvement is achieved by a fiscal adjustement, based mainly in many cuts in a lot of sectors.
Of course these cuts are accentuating the recession both in the public and private sectors: wage and price deflation, that will hinder the output growth and tax revenues.
The IMF estimated that Greece will need its debt in proportion of GDP in 120 percent by 2020. Given the competitive problem of Greece, this is an objective very difficult to achieve.
The reality is more problematic: the austerity is increasing the recession.
And, this black scenario leads the creditors to believe that, after the EU-IMF program end, Greece will have again problems to pay its commitments.
In this situation, debt restructuring is totally necessary, but not enough, to drive Greece back to the growth path.
The country will need to promote the export sector to restart economic growth. But, with the competitiveness problems that could be agravated by the debt restructuring, this will not be easy.
Besides that, the big part of Greek exports goes to the EU countries. And the fiscal austerity programs in these countries will negative affect the domestic demand, and consequently the imports (including from Greece).
The other way is reducing the competitiveness by wage reduction, deflation and increases in produtivity. However, this measures take a long time to make visible effects. But, if even with these measures, the Greek situation doesn't improve, the other solution is to Greece leave the Euro (staying in the EU).
Finally, as the Greek problem due to a large informal economy, with large scale tax evasion and doubtful statistics, an adequate politic reform could solve this problem very quickly.
Sem comentários:
Enviar um comentário