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To solve the deficit problem of G.I.P.S.I.

29/03/2012

All this effort to cut public spending can’t solve by itself the deficit problem of G.I.P.S.I. (Greece, Ireland, Portugal, Spain, Italy), since with the budget cuts comes the squeeze of the GDP and again the deficit measured as percentage of GDP grows. The only solution can be economic growth, either thru increasing exports, that works well also to reduce external debts, and/or increase domestic private consumption, without to increase the public deficit in absolute values

The only way i know how to increase export in the short term is by improving the competitiveness of the country, and it is easy to say but since devaluation in the Euro zone is technically impossible, hard to do. The very best solution in this case is to make the labor market as flexible as possible. It is amazing to see, that 50% of Spanish youth are unemployed, and the veteran employed, organized in unions, fight without compromise to keep the rights, they achieved during the times of plenty. I wonder the unemployed youth are not the sons and daughters of the older? In this times of crisis increased flexibility,  and opening to competition can create a major change in efficiency and with it hopefully the so much desired economic growth. Definitely keeping the youth out of work force is very unproductive.

As how to increase the private sector and reduce the public sector, it has to be done by privatization.  Selling public assets in the time of crisis is correct from many aspects. First this can bring cash, that can help pay back the loans, second it increases the efficiency of the privatized company, that will probably pay more taxes than the state owned company (including even the dividends it paid), and again it can increase the efficiency of the economy, if the privatization is done properly, meaning that  with the process of privatization some monopolies, that usually enjoy these state owned companies, are broken. Again increasing competition by braking big monopolies or small closed guilds, is always prosperous. As to the question what professional guild has to stay and what not,  has to be answered with another question “Whom are we protecting?, the costumers or the suppliers”. With the answer to this question, the solution will be obvious.

Of course this process needs political courage, something that is always very much in need. Yet after what happened to Greece, i hope the politicians understood, that they can’t cheat everybody all the time, sometime the truth has to be said and the right decision has to be made, even if the positive effects of their decisions will come after the end of their political mandate.  Still, to postponed the inevitable until there is no other choice means, as you correctly said, an other Greece is right behind the corner.

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