The problem in Greece

Somebody finally got out of the lazy thinking territory about Greece:

“The problem is also apparently not the size of the Greek welfare state—which is below the Eurozone average—although efficiency of service delivery (and corruption) is a definite problem; Greeks are not getting good value for money. Rather, the heart of the problem is in the antiquated revenue system that supports that state, which results in a budget shortfall consistently about 10% of GDP. Stathakis claims—perhaps overstating the case somewhat for effect?—that the top 20% of the income distribution in Greece pay no taxes at all. No wonder there is a fiscal crisis.

To make the problem worse, export earnings also seem to face their own structural cap that is consistently exceeded by import spending, which means that the debt that finances the government shortfall is increasingly held abroad. The debt is issued under Greek law, but now it is payable in Euros which Greece is powerless to print. In this sense, ironically, the fiscal crisis is a consequence of Greece’s success, after a long preparation, in joining the European Union, and hence giving up its own currency.

The point is that, if this analysis of the source of the problem is correct, then standard IMF austerity policy is unlikely to do much to help. If the problem is not the level of wages, or the size of the welfare state, then pushing wages down and shrinking the welfare state is not going to do much.”

For more see http://ineteconomics.org/blog/money-view/NET-on-Greece

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