What’s the worst that could happen if Greece declares bankruptcy, exits the Eurozone and defaults on its international debts?
I really would like to see.
I’m appalled by the fact that international financial institutions are yet to be convinced that austerity measures do not bring an economy out of depression. And here is why: no country in recent times has punched back, declared bankruptcy and announced a default on billions of foreign debt. So there is the facade that austerity measures never hurt a practicing government to the extent that it becomes bankrupt. But the reality is that many times countries on the brink, like Greece is today, have had to have their debts forgiven or they would have defaulted.
There must be a limit any responsible government can cut its spending to. I want to see economic theorists work on that. Where is the limit on cuts in public spending a government can embark on, especially when the economy is in depression or recession?
I think very little work has been done around that question. Or it could be that answers to that question are not a part of the decision making process of these institutions when prescribing what a government should do to save its economy. I am of the opinion that there is a real limit to how much cuts in public spending that governments can actually undertake without causing a total crash during a depression or recession. It’s an opinion I believe is worth testing. I’m of the opinion that when governments reach that minimum or cross the line, its own people would also stop spending and engaging with the formal economy, markets would completely freeze, outrageous losses to investors would result and capital would take flight.
I’m not sure how many big time investors are sending their capital to Greece, even among Eurozone investors. I’m not sure how many are really thinking of opening up new branches of their businesses there. But it certainly can’t be a positive measure. What we have here is a situation where people are scared to send you their money in investment and your income is in the negative when you factor in debts commitments. Yet you (the government) are being asked to cut spending? Cut spending and what happens to the people’s welfare and infrastructure?
Last year, for some reasons, the United States was on a brink of defaulting on its debts commitment. The government had to cut spending to buy it more time to fix its accounts. That meant that over 700, 000 people employed by the government had to sit at home for the time and they were not paid for those days. Thankfully the issue was resolved on the nick of time. What am I saying here? Even the USA didn’t think it was possible to do any further cuts in government spending right on the brink of a default. That cut in which the government undertook cost it a lot of money, measured in billions. If they had cut further, does anyone think the American people would have left their monies in their own banks? People would have panicked and done all sorts of things that would have put the economy in a worse state. I believe the Congress recognized that fact and compromised their hard stance. Are the people in Greece much different from Americans? Would they not behave in the same way Americans would behave if government keeps slashing public spending? When exactly would the Eurozone relax it’s own austere philosophy and give this people a cut and a break?
Greece has been cutting a lot for at least four years now. It’s really more than that. I think it’s good to know what the Eurozone has been cutting to help their situation. I suggest the Eurozone should cut costs of commodities in its markets. At government level, encourage capital flows towards Greece. Relax the burden of debt commitments. Not that easy? I thought so too. Soon more people would join in asking the zone, ‘do you really believe in a Greek come-back? Or are you just managing a situation that is terminal?’