Source: Mr George Mangion¸ PKF Malta
As Publsihed on Media Today¸ Wednesday 8th May 2013
Does it matter that Chancellor Merkel is slowly realising how unpopular are her austerity measures particularly at a time when most of the EU members at the Mediterranean rim are reporting higher deficits and increased unemployment. The answer is that it does matter especially now that by the end of September she faces a tough election at home and growing resentment from bailout countries which are suffering from strict reforms and cutbacks – a regime which has reinforced the effects of recessionary forces while exacerbating tensions among the social partners.
So one may ask what is the right cure for profligate countries which sought to seek a quick solution to their laggard economies not by passing unpopular reforms but by amassing huge debts when credit was cheap without any thought of how and when will their sovereign debt be repaid. Yes -politicians can be fickle when asked why they have turned the taps wide open in the good days (before 2008) and never rendered themselves accountable for gross profligacy particularly when the tide turned and a sharp recession hit the headlines and jobless queues started getting longer. Germany¸ whose Chancellor¸ Angela Merkel has been the main driver of a policy to impose spending cuts and labour market reforms on bailout applicants is the only country so far to record a budget surplus. At this stage let us revisit the countries which went begging bowl in hand for a bailout from the IMF¸ ECB and the Commission. Roll back the years and we meet the first real champion who tasted the poison chalice – Ireland. Others followed and the worst hit was Greece¸ as it is mired in recession-with unemployment in some parts running at more than 25 percent.
The disruption inflicted on its internal market have meant that Greek society is experiencing an “unheard-of fragmentation”¸ with output shrinking by some 20 percent during the six years of its prolonged bout of recession. The media reports that with the onset of austerity this has gripped the attention of many unemployed as they were sliding down mercilessly close to the poverty line. It is a fact that the middle class has shrunk and is irreversibly getting close to the poverty line¸ while the poor are getting poorer¸ which heightens inequality and help foments social unrest. Comparing it to other poor countries Greece is only slightly lower in the poverty scale than Spain¸ Romania and Bulgaria .Can this be the right prescription of medicine? Certainly many argue that it is not succeeding in turning the ailing patient into the athlete one expects in the short term so that he/ she can recover and hit the ground running. Logic teaches us that there is no gain with no pain yet the drastic spending cuts imposed on Greece by its international creditors in exchange for multi-billion-euro bailouts has made a difficult situation even worse . So is the answer a swing back to a libertine days coupled with a return to deficit financing in order to kick start its sluggish economy? Certainly not – given that Greece ignored the advice given by its detractors just before the onset of recession when it effortlessly accumulated over €360 bn in debts loaned by money no-problem European banks so that now that the honeymoon is over should the Greek taxpay