A world in economic crisis

Greece – the canary in the Eurozone coalmine

Posted in dodgy swaps and derivatives, European Union, Greece by Aussie on May 5, 2010

The BBC reports that the European Commission expects Greece economy to shrink by 3% amid fears over that country’s debt problem.  The biggest fear for the European Commission is the spread of the crisis to other European countries including Spain and Portugal. (this of course, would not be surprising because Spain and Portugal are one of the STUPID countries).

The Commission said the eurozone countries as a whole would see growth of 0.9% – an improvement on the 0.7% forecast earlier this year.

But it admitted that the recovery in Europe “continues to be surrounded by high uncertainty”.

The commission cited “recent tensions” in the markets as a concern.

Greece has been in recession since the second quarter of 2009.

The euro fell to its lowest level against the dollar in more than a year, at $1.2935, with investors concerned that the Greek debt crisis could spread to other eurozone countries including Spain and Portugal.

The euro is also down against the pound, with one pound worth 1.167 euros.

European finance ministers had agreed a bailout for Greece but the deal has to be ratified by several EU states, including Germany. It also faces opposition amongst the Greek public.

Once again Greece is facing strikes and disruption due to the opposition to the austerity measures that are required as a result of the bail-out deal. However, one must question the reality of the Greeks because it seems that Greece has become the ultimate Welfare State.

Reuters had reported on some areas of waste in Greece with regard to welfare spending :

  • tens of thousands of unmarried or divorced daughters of dead civil servants continue to collect their pensions. This largesse is worth more than $500 euros per year.
  • civil servants are protected from dismissal and can retire from work in their 40s.
  • Greek expenditure on pensions is expected to rise to 12% of GDP by 2050

The Greek government has promised to overhaul pension spending by raising the retirement age and banning early retirement.

Other areas of waste in paying civil servants include:

  • being paid extra to use a computer
  • bonus for speaking a foreign language
  • bonus for turning up for work on time
  • in case of foresters they get a bonus for working out of doors
  • bonuses for Christmas and Easter.

The government attempt to trim these bonuses as austerity measures would amount to a saving of 1.7 billion euros. However, the Greeks are not happy about the attempt to implement these austerity measures and they have taken to the streets with rioting, as well as putting on general strikes.

Up until 2008 when it was finally sold, Olympic airways had been a loss making proposition for the Greek government. Even worse, the unions had foiled previous attempts to sell the airline so that they could fly themselves and their families for free around the world. When Olympic airlines was sold the 4600 members of staff were given a generous compensation package. However some of these staff recently took to the streets because they had not received all of the promised benefits.

The Greek government owns 74 companies, mostly in transport and utilities, many of which are over-staffed and loss-making entities. The railways are losing something like 800 million euros per year.

Another area of waste is the employment of committees, even though it is not clear what some of those committees do:

Hundreds of state-appointed committees employ staff though it is not clear what they all do. Greece has a committee to manage Lake Kopais, which dried out in the 1930s.

One Greek paper estimated that committees employ more than 10,000 people and cost over 220 million euros a year.

Coming through on a pre-election pledge to cut such waste, the government recently announced it would shut down or merge at least 200 such committees that have outlived their usefulness.

On top of this, Greece is expending on arms at a higher rate than other countries in the European Union – this is due to the tensions with Turkey.

Tensions with arch-rival Turkey have kept Greek military spending well above that of other EU members, reaching 14 billion euros, or 6 percent of GDP, in 2007 and 2009.

Budget woes have limited military procurements and the 2010 defence budget now stands at 6.7 billion euros ($8.92 billion).

But nearly 80 percent of Defence Ministry spending goes on administrative costs and payments of army staff. The government has said it will gradually reduce costs and spending on arms purchases will be contained to 1.8 billion euros (0.7 percent of GDP) this year


One Response

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  1. YTZ4Me said, on May 8, 2010 at 1:57 am

    Most of California’s debt is coming due in July …. and the well is most definitely dry. How this gets resolved — and it seems that the Democratically controlled California legislature refuses to consider any meaningful slashing of spending and entitlements …. I think California will be the coal mine for US states. This summer will be quite interesting.

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