Investing

Greece Slits Its Own Throat

The conversations about the Greek debt load and deficit focus almost exclusively on programs to get the nation to cut costs in order to balance its budget. That leaves out the revenue and receipts part of the ledger.

The Greeks are in danger of making their financial situation much worse due to a series of strikes which seem to get larger by the day. According to the BBC, “Hundreds of thousands of Greeks are on strike to protest at the imposition of austerity measures to save the economy.” One of the effects of the labor stoppage is that Greece’s national transportation network is virtually shut down.

The Greek government tells unions and workers that it will need to cut their compensation as part of a cost control effort. The unions then arrange strikes to protest the measures. Greece’s GDP growth is damaged by the work stoppages. Then the size of the cost cuts needs to be raised. It is a cycle that cannot be maintained.

Greece has said it will try to raise the government’s income by cracking down on tax cheats who apparently make up a significant minority of the population. The underground part of the Greek economy is as much as a third of the total. But, to bring those who do not pay their fair share to justice requires a substantial investigatory and collection system that Greece probably does not have.

Nations in the eurozone has been reluctant to provide Greece any financial aid or guarantees of the nation’s debt. These countries reason that Greece has done a poor job with keeping its cost of governing down. Now the objections to providing capital to Greece will be strengthen by the argument that a nation on strike is a nation will dwindling economic output.

Douglas A. McIntyre

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