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Der
Spiegel reports on how Greek society is adapting to
the many “austerity measures” that have been enacted in recent
months. It sounds as though the painful (yet much needed) lowered
expectations of what government can and should provide are well underway.
The
austerity measures that were supposed to fix Greece’s problems are
dragging down the country’s economy. Stores are closing, tax revenues
are falling and unemployment has hit an unbelievable 70 percent in some
places. Frustrated workers are threatening to strike back.
…
The government’s draconian austerity measures have managed to reduce the country’s
budget deficit by an almost unbelievable 39.7 percent, after previous
governments had squandered tax money and falsified statistics for years.
The measures have reduced government spending by a total of 10 percent, 4.5
percent more than the EU and International Monetary Fund (IMF) had required.
The
problem is that the austerity measures have in the meantime affected every
aspect of the country’s economy. Purchasing power is dropping,
consumption is taking a nosedive and the number of bankruptcies and
unemployed are on the rise.
The country’s gross domestic product shrank by 1.5 percent in the
second quarter of this year. Tax revenue, desperately needed
in order to consolidate the national finances, has dropped off. A mixture of
fear, hopelessness and anger is brewing in Greek society.
They
go on to provide a number of anecdotal accounts about how life has changed
for both individuals and communities with conditions not likely to improve
any time soon given that massive layoffs are expected this fall.
As is
the case in the U.S., consumer spending in Greece accounts for more than
two-thirds of all economic activity, a statistic that, in itself, should be
quite frightening to us ‘Mericans. Come to think of it, that would be
an interesting graphic to see for 15 or 20 nations around the world -
consumer spending as a percent of GDP. My guess is that, along with the U.K.,
we already know three of the top five.
Anyway,
in Greece, they are now cutting off the source of much of that
spending…
Prime
Minister George Papandreou’s austerity package has seriously shaken the
Greek economy. The package included reducing civil servants’ salaries
by up to 20 percent and slashing retirement benefits, while raising numerous
taxes. The result is that Greeks have less and less money to spend and sales
figures everywhere are dropping, spelling
catastrophe for a country where 70 percent of economic output is based on
private consumption.
A
short jaunt through Athens’ shopping streets reveals the scale of the
decline. Fully a quarter of the store windows on Stadiou Street bear red
signs reading “Enoikiazetai” — for rent. The National
Confederation of Hellenic Commerce (ESEE) calculates that 17 percent of all
shops in Athens have had to file for bankruptcy.
…
The entire country is in the grip of a depression. Everything seems to be
going downhill. The spiral is continuing unabated, and there is no clear way
out. The worse part, however, is the fact that hardly anyone still hopes that
things will improve one day.
The
country’s unemployment rate makes this trend particularly clear. In 2009, it was 9.5 percent. This
year it may rise to 12.1 percent and economists expect it to reach 14.3
percent in 2011. Those, though, are only the official
numbers, which were provided by Angel Gurría, secretary general of the
Organisation for Economic Co-operation and Development (OECD). The Greek
trade union association GSEE considers those numbers far too optimistic. It considers 20 percent to be a
more likely figure for 2011.
It
should be interesting to see what happens now that the Greek people have
progressed through three of the five stages of grief – denial, anger,
and bargaining.
Now
apparently in stage four – depression – the big question is
whether they’ll ever make it to the final stage - acceptance.
Tim
Iacono
Iacono Research.com
Tim
Iacono is the founder of Iacono Research which provides market commentary and
investment advisory services specializing in macroeconomic analysis and
commodity based investing. He also writes the popular blog The Mess
That Greenspan Made.
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