Greece’s economic plans are under scrutiny as the country attempts to convince the European Union and investors that its plan to tame the EU’s largest deficit is credible. EU and European Central Bank officials were in Athens last week to vet the government’s three-year stability pact, an outline of how Prime Minister George Papandreou aims to reduce the shortfall from 12.7 percent of output in 2009 to less than 3 percent by the end of 2012.
Anyone else get a vision of a relief pitcher running in from the bullpen with bases loaded only to give up a home run on the first pitch?
Maybe we should send the IMF to California? Oh, that's right California is apart of the United States union. A union where twin trade and budget deficits -3% and -11%, respectively don't matter.
The easiest way to reduce structural deficits is reduce consumption during a recession. Can't call it a depression until well after the fact. Net exports as a percentage of GDP has declined sharply since 2005Q4. Poof, the deficit starts to shrink. Unfortunately, for countries with structural deficits, where imports far exceeds exports and must be settled with debt issuance - future consumption, national income falls as consumption falls. This is because a disproportionate amount of income is derived from consumption. Poof, another problem arises. National income and standard-of-living begin to drop.
Bring in a new relief pitcher!
Source: bloomberg.com
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