Thursday, April 26, 2012

Beware of Greeks Bearing Gifts Making Promises

EuroSo the ink is barely dry on THIS year's agreement, and the Greeks are already trying to renegotiate. (As far as I can tell, they still haven't done everything they promised to do in 2010, but I could be wrong.) Greece In Talks To Push Back Deficit Goals One Year - Report -
In an interview with Dow Jones Newswires Tuesday, Sachinidis raised the possibility of easing back the country's austerity program in order to help Greece return to growth.
And they are already negotiating with their creditors.

Why Greece has any creditors at this point is beyond my comprehension. They lied about honoring their bonds in the first place. They lied about the measures they would take in 2010 to get their first bailout. Now it appears they lied about their intentions to raise revenue in order to get the second bailout. (Any bets on whether this will be the last bailout? Or how long Germany will keep footing the bill?)

Now, Greece is in a recession - a fairly long one. However, this is hardly the "unexpected" situation that the Greeks make it out to be. (They were going through these negotiations about a month or 6 weeks ago. How much do you think has changed in that time?) Greek labor is too expensive. (Or not productive enough.) When the Drachma was in existence, the exchange rate was such that it didn't matter. Greeks couldn't buy stuff from the rest of Europe - it was too expensive - and Europeans flocked to Greece for cheap Mediterranean Vacations. But with the common currency, that is no longer true. Greek goods can't compete with Germany, let alone China. And Greece is no longer an inexpensive destination.

Mismanagement of government resources is epidemic. Greece pulls the plug on pensions for the dead | Reuters At least 9000 people "over the age of 100" were collecting retirement benefits. In the end, 200,000 people were collecting benefits that they were not entitled to receive.
Greece has halted welfare or pension payments to 200,000 people either because they are unentitled to the money - or because they are dead, a Labour Ministry official said on Wednesday.

The number of people involved in the abuse, dead or alive, is roughly equal to two percent of the Greek population.
This was managed via some simple data cross-checks, and it uncovered 2 percent of the population involved in some kind of fraud. To call this low-hanging-fruit is an understatement. How much more could be uncovered with a little effort? And what percentage of the Greek population will be found to be guilty of fraud?

Approximately 25% of the Greek population is retired. Couple that with generous retirement benefits, and you can see one of the causes of problems. Throw in a healthy portion of benefit fraud, and you don't need to be Milton Friedman to see where this is going.

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