America is not the only country suffering from a deficit problems. A number of the countries in the E.U. are struggling to control there debt, Greece being the major concern. The E.U. has decided to support The Greek Government's plan to fix the deficit. The plan may includes wage freezes, higher retirement age, and higher gas taxes. One of the main worries by the E.U. is that if Greece goes bankrupt, it could start a domino effect with other debt racked European Countries. Worries about Greece's debt lowered the value of the Euro to a six-month low last week, according to the New York Times (http://www.nytimes.com/2010/02/04/business/global/04drachma.html?ref=business ).
So how bad is Greece's debt? According to the article Greece has a debt that is equal to 113% of it's GPD! Which means that Greece owes more money than all the Greeks spend in a financial quarter. I had a hard time try to find the U.S.A. national debt as a percentage of the GDP to compare. As of year ago it was around 80%, though it is probably higher now. Officials in Athens say they want to reduce the debt to 3% of the GPD by 2012. That seems to me to be an impossibly large decrease in dept in so short a time.
"Worse, a sudden and drastic upward revision of its deficit following a change of government last year exposed alarming deficiencies in Greece’s abilities produce reliable economic data."
Is comparing National debt a good use of the GPD? Given Greece's unreliable data, how much trust should be put in these numbers? And what do you think this debt problem means for Greece and for the E.U.?
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We've discussed in class why GDP isn't necessarily a good measure of progress, but it seems reasonable to measure debt against it because it is like expenditures versus activity.
ReplyDeleteAs to how it will affect the EU, I just read Lester Brown's "PLAN B" about what we need to do to keep civilization from collapsing (which sounds melodramatic, but his point is that societies historically collapse when they can't feed their people and we are increasing population and destroying resources so it's a legitimate concern). One of his main points is that one failed state in a region is a major problem because it becomes a harbor for all the problems that are undercontrol in nearby countries--terrorism, civil war, poverty, drugs, whatever-- and so Greece's status is very important even if, like me, you have no idea what our economic relation to them is. Think about Yemen; it's been on the top list of failing states, and now it's in the news because terrorists are congregating there. Looking out for one's neighbors is both an act of goodwill and self-preservation. A,E
This is over-ambitious if not impossible to reduce their trade deficit by over 115% in two years. These proposals to reduce GDP have its positives but their negative sides must almost be taken into consideration. Its not only important to improve the GDP but the welfare of the average citizens must also be taken into consideration.
ReplyDeleteAlthough increasing the retirement age will result in less pension payments and a larger labor market it also has its bad sides. I dont know what Greece's current unemployment rate is but I am assuming that it is very high. If there is an increase in retirement age, there will also be an increase in unemployment because fewer jobs will be available on the job market esp. to young people just entering the work world. Wage freezes are a good idea for the GDP but not for the economy and country on a whole. With wage freezes also come the inevitable; a reduction in consumption. People will have less money to spend. This will inturn lead to a reduction in consumption. With higher gas taxes, the government earns more money. However, it must also be taken into consideration that gas is not only used to power private motor vehicles but its also the main source of power in many manufacturing and other producing inductries.
If these plans are to be put in place, the govt should also think of alternative that will make these ripple effects as bad.
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I don’t mean to be pessimistic but for the Greeks to say that they are going to reduce their debt by 110% in two years is just unreasonable. If they can’t provide reasonable data then how are they expecting to reduce their large debt in just two years. Comparing national debt might not be such a good idea because every countries economy is different to each other and comparing them would results in false data. This debt that Greece has should concern other countries because once one countries economy begins to downfall then the rest of the world becomes unbalance and problems begin to arise everywhere else.
ReplyDeleteIt's cool that the Greeks have a lofty goal like that, however it seems to high and at too much cost. They would literally have no government for two years in order to do this. This has a major effect on the Eu as well, especially after seeing Iceland declare bankruptcy earlier. Greece needs to focus on effective ways and they need to tighten their belt. This is the same for the US, keep the spending for important things, but everyone needs to tighten their belt and sacrifice for the good of the country.
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