Greece has joined Spain as one of the only two countries in the European Union with an unemployment rate above 25%. The new figure — 25.1% — coupled with a gross domestic product decline that has been estimated at as much as 6% per annum, show that Greece cannot cut its way to a lower budget deficit. With unemployment so high, tax receipts are bound to plunge well below current expectations. Whatever documents Greece gives the International Monetary Fund, European Central Bank and EU have quickly become nearly useless.
What happens to Greece now will show the extent to which the nation’s rescuers are willing to agree that the timetables set for a recovery are so optimistic as to be crazy. If anything, Greece has entered a depression that may end up looking like the one in the United States 80 years ago, albeit on a much smaller scale. But Greece will not have a major war, and the government spending that goes with it, to pull its economy out of a tailspin.
There is no longer a single piece of evidence to show that a higher tax rate in Greece will help close its deficit gap. A move to stimulus packages to help the country’s financial situation cannot work — at least not for years. To set structural reforms that will bring back the jobs dissolved by the recession and the businesses that created those jobs would be a long-term and painstaking project. So much capital has been pulled out of Greek banks that recapitalizing them will be a series of puzzles. And, without austerity, oddly enough, some Greeks may return to old habits of short lifetime work and tax dodging that matches that done anywhere in the world. The pressure for them to return to work or follow government rules may melt away with stimulus.
There is no magic in passing above the 25% unemployment mark. It is simply a sign that, at some point in the past year or two, the financial situation in Greece became one that can be solved only by very, very long-term repair.
Douglas A. McIntyre