Greek’s Debt crisis solution beats both commonsense and economics. I feel totally perplexed with the way things are turning out in EU. Though Greece’s PM won a majority in the parliament recently for a new austerity plan and EU and IMF’s bailout plan, taking a huge amount of $110 bn, in addition to its earlier bailout of about $120 bn, makes me surprise by the basic fact that where is the source of revenue for it to return back to normalcy. Also there were very few takers to its new bond issue and the total debt is almost equal to its GDP.
The economic activity in Greece is not improving, unemployment is low, trust in its government is at its lowest levels, they need heavy spend cuts, raise taxes to garner money to repay its debt. When the sentiment in Greece is at such low levels, can the government raise taxes to increase its revenues? With such stagnant economy, government needs to improve the situation with new projects to generate more economic activity rather than announce spend cuts which can deteriorate the situation. In fact, many nations fall prey to the idea of strict austerity measures which can be counterproductive.
When politics interfere with economics, it will surely beat commonsense and the EU crisis will turn out to be a classical case. It will be very interesting to see how these measures turn out for Greece and what lies in store for the remaining nations in PIIGS.
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