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Greece Economic Crisis (Pro Drachma Speech)

In: Business and Management

Submitted By ConnerJolly
Words 1484
Pages 6
It is actually unlikely that Europe will continue to bail out Greece. Even if it wanted to many of its members are doing very poorly as well. Italy’s debt to GDP is well above 100% (at least 120) and Ireland and Portugal are almost at 100% themselves. Spain has an unemployment rate of 23% and 49% in youth. (Bloomburg.com) Even their best economies Like Germany only have an 85% Dept. to GDP ratio.
(And to put that in perspective, the US has massive debts and its debt to GDP ratio is only 60%.) Currently Germany has given 6.5% of its GDP to various bailout packages just to see the Greek economy suffer further. Germany and France gave a combination of 240billion euros totaling to a grand 320billion euros. Considering that Germany’s debt to GDP is exceeding 85%, every percent increase hurts. Even if they were not doing poorly, let me explain why they would hesitate to give to Greece

And I wouldn’t blame them for not hesitating to give to much money to them. Even if their economy was doing well, this circle of debt is not even mentioning the shady accounting they were doing before the crisis came to light, or the fact that most of the money that is being given to them is going back to the people it owes debts to. Why would they give money to Greece if they are not even benefiting from it. Greece and the Netherlands would actually have kept growing if it were not for the transferring to the euro. (We know this because Sweden and Switzerland continue their growth on a free-floating currency.) So it not only hurts everyone else in the Eurozone, but it’s not actually helping Greece.

You’re right that Greece could bring others with it… in fact, it probably would bring others with it… and quite frankly… I think it Should bring others with it.

Even before Countries in Europe began to fail, it was obvious to see that the Euro was a bad idea.

Out of the top 20 alive economists of our time, none of them had anything good to say The Eurozone was made after WWII for the more political than economic reason of keeping countries from going to war with each other. Ironically WW2 was started because of economic failure, split far left and right political views and political unrest, which is exactly what the Eurozone is causing. Like my partner previously stated, the biggest problem with the Eurozone is the lack of flexibility for the currency; every country has its own level of competitiveness and rarely are they the same. This means that when a place like Greece has high debt to GDP, their currency cannot fluctuate to help them and they cannot default either. Because the euro connects all countries together economically to some extent, it rewards bad economies (and/or governments) and penalizes good ones by making the good ones give to the bad. A recent report shows that if the Netherlands had followed Switzerland’s example of not going into the euro, they would be 45billion euros better off per year (which is about $60billion.)

While noble in thought, the Eurozone simply holds countries back economically and does not do what it was intended.

Bailout packages * The total for France and Germanys bailout was 240billion euros * In March they agreed to get bailed out by getting paid 77billlion euros for bonds worth up to 75% less * They then got another 130billion euros * Almost none of the money went into the Greek Government to pay for public services. Instead it went to the people that Greece has debts to, not helping its GDP but rather just buying time. * Meanwhile the elections in early May 2012 made it clear that the major political parties would not be in charge any longer, for they were the ones to blame for the recession. The far left, far right and other extremist parties took the poles but nobody came out on top. * 170Bilion Debt to GDP (government statistics.com)

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Election
(CNN)
30.1% new democracy 12.6% Pasok (center left) 26.5% Syriza (radical left) 7.4% Ind. Greeks (right)
6.9% golden dawn (far right) 6.1% Democratic left 4.5% KKE (Comunist)
* The President will give them the mandate to form their own government but they will not be able to do that on their own. They do not have an absolute majority unless they had 40.4%
* the President is wanting to join other parties in coalition (primarily Pasok)
(Syriza will not go into partnership but rather opposition.)
(Pasok will not join in to the new democracy unless all political parties are involved in a national unity)

(to create a coalition government, the new democratocracy has to combine another party to equal over 50%.)(Syriza does not want to) "They are looking for an accomplice to continue their catastrophic work," Syriza spokesman Panos Skourletis told Mega television. "We will not help them."

While it is agreed that a fall of 30% is necessary,

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Hyperinflation (USA gold) (NYTimes Business and Money)

Between 1921 and 1924
After the first world war, Germany fell into a terrible economic situation where the papiernote fell from 8.9 per US$1 in 1918 to 4.2 trillion per US$1
This started when Germany produced a flood of new money that rose prices. Soon after, the prices and wages had risen to the point where people began to lose confidence in the papiermark. The lack of confidence in the currency combined with the government producing more than needed lead to higher and higher inflation. Although the inflation was bad, it was not any worse than the American government. When it really hit was when the other nations decided that Germany was not good to pay its debts back and so they took its gold and foreign currency. Inflation skyrocketed- Pretty soon it cost less to burn your money than to buy firewood. Such a thing would not actually happen to Greece for a few reasons. The world know what happened after the hyperinflation of Germany (Hitler) and for obvious reasons does not want that to happen again so it will let Greece pay its obligations back with whatever currency they give them. From the same sanario, Greece has learned not to print to much money and simply let the market decide the value of the currency.
-Yes it will inflate but at a healthy rate (even 150% or more would not be bad)

besides, Inflation (or at least the fear of inflation) is good for the economy because why would someone want to buy something now if they think that the item is going to be the same price or even cheaper a year from now. So they hold on to their money and the economy is not boosted.

At the same time, McCormick’s grocery-store customers placed about $10 million of orders in last year’s fourth quarter that they would have made this year, in order to get ahead of a 3% price increase, company officials estimate. The company reported a 5.6% increase in sales; without those added purchases, the increase would have been 3.9%. (new york times)

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Run on Banks

As for the run on banks, your claim is an understandable one but there is an obvious solution. The reason there is a run on banks in the first place is the fear that people’s money is not going to be worth anything. If stocks decide sharply that their money is going to be worth much much less (which is what happened in the great depression,) and if the country is going to switch to a currency that the people know is going to be heavily inflated then they switch it out before the bank switches.

The solution is simple. If the Greek banks do not tell their citizens when they are going to have their banking holiday, then people will not run to the banks to withdraw their money.

Once the currency has been switched, then going to the bank to withdraw your money will be useless for multiple reasons 1) The damage has been done and your money is now the new currency at whatever value the market decides. 2) Once they are in their new central currency, they can set up a central bank and set up deposit insurance so that people will not feel that they are losing there money. (In the US this was a huge success after the great depression) 3) Because of the first two steps, if they see that other citizens are not in a panic to take their money out than they shouldn't ether.

Roger Bottle actually won the $250,000 economic prize for the best economic plan to get out of the euro and what I just described was his plan. (BBC news)

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