Tuesday, May 3, 2011

The Essence of the Greek Debt Crisis








The Greek crisis, which is now quickly becoming a Eurozone crisis was triggered by the American financial crisis which itself was triggered by the subprime crisis and the availability of low interest money, stemming from many places including Chinese savings.

The Greek crisis reflects aside from the weak Greek economy, the anomalies of the Eurozone.

So the Greek crisis is in essence a European crisis which is in essence a crisis of a financial system that basis itself more on speculation rather than production; note that many corporations in the past preferred to invest their profits in Wall Street, rather than in actual production lines.

Focusing on Greece, the Greek crisis reflects an ecosystem built on political favoritism; the electorate voted politicians in and in return was granted government jobs which translate to work for life without having to do anything regardless of education or actual competence.

The result is a monstrous bureaucracy that is now being called upon to produce and as any ecosystem which is called upon to change, is reacting adversely to the individuals (the politicians) it was designed for to support in the first place. This bureaucracy includes the core public sector, the different government agencies and professional associations (which are headed and staffed by party cronies), the revenue service and so forth.

A student once asked President Nixon why he was unable to stop the Vietnam War: Since the President could not reply the student understood that the President couldn’t; the system was working (ie. the American military industry and related interests) autonomously and would react violently to any opposition.

The same situation applies to the current Greek government bureaucracies, institutions, professional associations and so forth.

Since the private and public sectors are intertwined, as Galbraith points out in his final book, it goes without saying that a malfunctioning public system leads to a malfunctioning private sector since innovation is stifled and contracts are landed through bribes.
Therefore aside from consuming huge costs, the public sector leads to an incapacitated private sector as well as poor university research thus putting Greece in a precarious situation insofar as growth is concerned.

The only salvation is careful dismantling or bypassing of the existing public system in favor of a new improved, efficient and healthy government organization. This will only guarantee long term growth and prosperity for the country.

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