Thursday, October 11, 2012

Even the IMF gets it

The IMF recently advised the Eurozone to give more slack to Spain and Greece, and stop imposing harsh austerity demands on two of Europe's most debt-ridden countries. For well over a year now, Greece and Spain have been the thorns in the side of Europe's recovery, stumbling time and again over its mounted debt while trying to cut deep enough to take the edge off.

The interesting thing about this is that it highlights a growing advocacy for European powers to move away from harsh austerity, and adopt a more balanced approach to deal with heavy debt held by smaller nations. Those who have been calling for harsher cuts have little evidence to show that it's been helpful, even among those nations that have embraced it to the fullest. So, when the IMF says that austerity measures need to be scaled back, it would probably be in everyone's best interest to at least consider what they have to say.

Now, even if Europe somehow manages to pull itself out of this debacle, there's still questions to answer. Such as, how do they prevent such an issue in the future (short of breaking up the euro, of course)? How do larger, more prosperous nations like Germany and the UK balance against smaller countries like Greece with standard of living and productivity when they're all tied up with the same currency?

To me, the answer has never been austerity, and I honestly believe that the euro can be saved. While I'm by no means an expert on economics, especially European economics, I do happen to think that there are solutions that may be unconventional that can still be successful.

One problem is that Greece is small, remote, largely rural, and has no major industries aside from tourism. It has little to offer in the way of international trade. Yet its citizens benefit from some of the best retirement packages in the world, and have one of the highest standards of living in Europe, all on borrowed money. How does Greece maintain that, pay back its debt, and keep itself from being so deeply entrenched again? It has to change how it interacts with other nations, especially other nations on the euro.

One solution is to turn Greece into a trade nation. Make Greece the China of Europe: low/no tariffs for imports/exports and free trade through Greece for all European nations,and any goods coming from without the Euro would have taxes/tariffs placed on it through the Greek markets. That money would go 50% to the debt-holders of Greece, 50% to the Greek government. This solution would mean that Greece has a valuable asset to give to all of Europe. While the larger nations may not take advantage of this, other smaller countries probably would. This would give Greece some authority over the European markets, and make them a player in the European economy, rather than a consumer.

Another is to reinvigorate Greece to be a more lucrative or attractive place to conduct business. Lowering taxes for businesses, encouraging growth, and turning Greece into a locus of private-sector activity in Europe would help it to jump start its domestic economy.

Finally, Greece could be reinvented as a tourist destination. Recreation programs and travelers incentives could be used to make Greece an affordable, attractive place to vacation. Again, lower excise taxes and so on could encourage people to visit.

What do all these solutions have in common? They cost money and take time, and won't work if there's further austerity. Instead of slashing spending in the hopes of digging out of a debt hole larger than the countries GDP, why  not work to raise that GDP and use the new-found productivity to pay back that debt? It would make the euro stronger, Greece stronger, and stabilize the European economy for years to come.

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