The recent Mac-Von debate: "Should
Greece stay in Eurozone or move out" had the teams battling out to prove
their point. Let’s see what each one had to say:
Amrutha Ghali & Akansha Mintri: Greece
should move out of EU
The
Austerity measures on Greece are
•
Increasing taxes-imposition of a national, regressive, property tax on
homeowners
•
Reducing benefits (pension payments etc.). Downward pressure on wages and price
• Effect on the public health service-suspended payments to EOPPY, on which
pharmacists rely for funding to prescribe drugs.
Because
of this,
• Greece will be stuck in a vicious cycle of insolvency, lost competitiveness,
external deficits, and ever-deepening depression.
• No growth, no productivity, rising unemployment in Greece
• Cutting deficits will reduce demand
• Price deflation will increase the real value of debt and will further
increase current account deficit
• Greece already has an official unemployment rate of 16% and fall in GDP is 7%
per year, so further unemployment and falling incomes will effect democracy.
Even if Greece agrees to stay back-continued borrowing is needed to finance its
current account imbalance. So the core countries need to fund it. Even if Germany
formalizes transfer of funds, it will demand further decline in wages and
incomes that will lead to severe political tensions between Germany and Greece.
Abandoning
the euro now and creating a new drachma would permit a devaluation and a
default that might involve much less economic pain than the current course. The value of the new drachma would fall relative to the euro,
automatically reducing real wages and increasing Greek competiveness without
requiring Greece to go through a long and painful period of high unemployment.
Instead, the lower value of the Greek currency would stimulate exports and a
shift from imports to domestic goods and services.
Siddharth
Jaiswal & Abhishek Sethi: Greece should stay with EU
Greece
has taken some significant steps towards getting its public finances back on
track but clearly much more is needed. The fact that the country is in a deep
recession and that this effort is based almost exclusively on reducing public
spending and increasing revenues through greater indirect taxation has placed a
very heavy burden on most Greeks. The social impact of the crisis is reflected
in the record unemployment rate, the closure of shops and businesses, and an
increasing number of people facing social exclusion.
•
As the government embarks on a new round
of austerity measures, it is clear that an effort will have to be made to keep
the majority of the public on board. Greece and its partners will have to pay
particular attention to introducing a sense of burden sharing and fairness with
regard to taxation; presenting a coherent vision of how the public sector can
be reformed to become more modern and efficient and not just cheaper and
smaller; and dispelling some of the stereotypes that are unfairly damaging
Greece’s image and feeding scepticism domestically and across Europe.
Following
observations are a proof that Greece is on its way to recovery
- Budget numbers are on track to meet its fiscal consolidation targets (Budget deficit narrowed by 40 %). Greece is complied with all the fiscal measures and transparency on the implementation has been increased.
- The Parliament passed the key pension reform bill at the beginning of July.
- Better political support for the next drive of austerity measures.
- Government’s cash deficit fell from 19 Bn Euro to 11 Bn Euro and the budget’s primary deficit narrowed to 5 Bn Euro from 12 Bn Euro.
- Greek parliament passed the new tax bill which includes
- Unified progressive tax scale for personal income.
- Three year tax exemption period for new businesses.
- Various other taxation measures for capital and real estate and business income.
Liquidity condition of Banks (Stress Test)
indicates that the bank’s solvency buffer remains adequate, with some erosion.EMU exposure to Greece is significant,
European bank holding large amount of Greek Government Debt, this suggest that
there is a strong incentive for the euro area to avoid a restructuring or a
default.
Post
your comments if you agree or disagree to any of the opinions/facts mentioned
above.
