BWorld 10, Greece crisis, pension and rule of law

* This is my article in BusinessWorld Weekender, July 9.

Greece’s debt crisis and lessons for thePhilippines

AFTER piling more than 300 billion euros of public debt, Greece could not pay some of the maturing obligations. It defaulted paying $1.6 billion to the International Monetary Fund (IMF) last week.

How did Greece and its people dig this deep hole of debt?

By living beyond their means, by overspending each year without exception, for decades. It also did not follow many of the conditions of its lenders, especially on spending cuts and revenue increases, a.k.a. “austerity” measures.

SPICY-G DEBT

Below are the heavily indebted EU economies of the European Union, especially the SPICy-G countries (Spain, Portugal, Ireland, Cyprus, Greece) that have adopted the euro. The United Kingdom is part of the EU but does not adopt the euro and is excluded in this list. Germany is not exactly heavily indebted, but it is the main lender to its highly indebted neighbors, so it is included here for comparison. (See Figure 1)

The turning point for these indebted countries was the housing and properties bubble burst that started in the United States in 2008. By 2009, the contagion affected many EU economies. The SPICy-G countries suffered significant increase in their debt/GDP ratio from 2009-2013. But all of them have somehow stabilized by 2014 by biting the bitter bullet of austerity measures, except Greece.

PENSIONERS AT 26, 51 YEARS OLD

When majority of Greece voters supported the socialist-leaning Syriza Party headed by Alexis Tsipras in January 2015, they also supported Mr. Tsipras’s agenda to fight austerity measures that were stipulated in previous bailout funds.

Among the factors why Greece’s public finance is heavily compromised is their generous retirement and pension system, which required additional public borrowings. In December 2014, Greek Labor Minister Yiannis Vroutsis reported to the parliament, as quoted by news reports:

“In the public sector, 7.91% of pensioners retire between the ages of 26 and 50, 23.64% between 51 and 55, and 43.53% between 56 and 61. In IKA (Social Security Fund), 4.44% of pensioners retire between the ages of 26 and 50, 12.83% retire between 51 and 55, and 58.61% retire between 56 and 61. Meanwhile, in the so-called health funds, 91.6% of people retire before the national retirement age limit.”

So people then can opt for early retirement at age 26 and get monthly pension from the state. Wow. Until 2009, the mandatory retirement age in Greece was only 58 years old with 80 percent of that sector getting pension payments. Workers then were even agitating for a lower retirement age. They did not succeed, of course, as Greece plunged in deeper debt, and in the pension reforms in 2010, the mandatory retirement was raised to 61, then 65.

A Filipino friend went to Greece a few years ago and stayed for four months. He observed that people had time to rally almost daily, demanding higher salaries but lesser work hours. Their lunch break was from 12 noon until 3-4 pm.

Last Sunday, July 5, the Greek majority voted NO to austerity measures that their country’s leaders earlier agreed upon with creditors. That vote may find resonance in that country’s being the birthplace of democracy. But the Tsipras government and its supporters effectively do not want to pay many of their huge debts, money that were used mainly to pay for the salaries and perks of government personnel and finance various welfare and pension subsidies.

THE PHILIPPINES AND SOUTHEAST ASIAN DEBT

Unlike in the critical 1980s, the Philippines today is much like its neighbors in the ASEAN. They are nowhere near the situation of Greece or the SPICy countries. The level of public indebtedness in ASEAN is just one-half or even one-fourth of those in the SPICy-G. The Philippines and Indonesia, in particular, have relatively low debt/GDP ratio. The denominator, the GDP, is rising faster than the numerator and, hence, the ratio for the Philippines is consistently declining. (See Figure 2)

LESSONS FROM THE GREEK FISCAL CRISIS

1. SHORT WORK: Early retirement with pension may be cool but it will punch a big hole in the annual budget, as the number of workers decreases while the number of pensioners increases, requiring additional public borrowings.

2. RULE OF LAW: If you borrow money, pay it. The bigger the debt, the stricter will be the conditions set by creditors. Follow those conditions whenever possible, do not blackmail creditors with emotional cries of “unjust, cruel conditions,” then demand that the terms be changed midway.

3. HUMILITY: If you cannot pay your debt on schedule, humbly ask for reconsideration and debt restructuring. It was you who begged for those loans in the past, not the creditors.

4. SAVINGS: If you can live beyond your means resulting in overspending and borrowings, learn also to live below your means on other years, cut spending and aim to have fiscal surplus and pay back some of those loans.

5. PRIVATIZATION: Other than more taxation and fees, substantial revenues can be realized through privatization of state-owned corporations and banks, wide land holdings, and other assets.

6. ROLE OF GOVERNMENT: Limit it to setting fair rules for all players and become an impartial referee in disputes, enforce the rule of law. Governments should refrain from being businessman-trader and business regulator at the same time. B. Oplas, Jr.

Bienvenido S. Oplas, Jr. heads Minimal Government Thinkers, a free-market think tank in Manila, and is also a fellow of the Kuala Lumpur-based South East Asia Network for Development (SEANET), which advocates economic freedom in the region.

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See also: 

BWorld 6, Biotechnology, Innovation and the Philippines, June 19, 2015 

BWorld 7, Free Trade vs.Protectionism via Non-Tariff Measures, June 26, 2015  

BWorld 8, Manila's Traffic and Transport Woes, June 27, 215 

BWorld 9, Poitical populism vs. tax realism, July 05, 2015

Fiscal Irresponsibility 28: Greece's Public Debt and Populism, February 09, 2015 

Fiscal Irresponsibility 30, Grexit is another socialist failure, July 08, 2015

Fiscal Irresponsibility 30, Grexit is another socialist failure

Hey Joe, what's happening? An economy that has been on budget deficit for decades should not aspire to have a fiscal surplus? Always living beyond one's means, never living below one's means? Populist but lousy, Joe.

These are screen shots of Joe Stiglitz's tweets last night. The man is playing populist politics here. Tsipras and the Greek majority have declared loudly and clearly that they won't aspire for fiscal surplus, that endless deficit and borrowings are cool and their entitlement mentality is correct. Simply because they are in the Eurozone, they shd be entitled to e ndless bail outs by other Euro economies. Lousy and opportunist thinking.

I replied to Joe Stiglitz on twitter. I doubt if he will bother to respond, the man's head is full of ego and populism.

This chart is from zero hedge's tweet yesterday. This is one reason why Greek debt mess isn't spreading to other banks. 

Greece debt keeps rising and Joe Stiglitz thinks the debt should continue rising via more EU bailout funds. The creditors are irresponsible and insensitive while the debt addict, the debtor is right and cool? Lousy.

Here is a breakdown  of Greece debt, from CNN Money, February 2015. 

No sympathy for Greece leftism and socialism. EU regional central planning is better for its national central planning. Equally heavily-indebted Cyprus, Ireland and Portugal managed to escape a full blown fiscal crisis because they heeded EU's austerity conditions. Greece did not, and things are worsening, not improving. Chart from Bloomberg. 

Tsipras and the rest of Greek socialists, other international socialists, should be ashamed of this development. News from Business Insider, 'Events are nowspinning out of control' in Greece

July 07, 2015.

Varoufakis resigned in the middle of the night on Sunday, and news broke that Tsipras and Varoufakis' replacement — Euclid Tsakalotos — would head to Brussels for an emergency meeting on Tuesday. When they showed up at the meeting on Tuesday, they didn't have a plan.

A report from Reuters on Tuesday indicated that Greece's banks only have 2 days of cash left. And this after ATM withdrawals have been limited to 60 euros per day for over a week now.

And from Bloomberg,  EU Tells Tsipras the Party’s Over as Euro Exit DoorSwings Open, July 08, 2015.

"In a tense and at times emotional meeting, Tsipras’s European peers told him he’d failed to appreciate the efforts the continent’s voters and taxpayers had made to help the Greek people and blamed him for escalating tensions across the region. Six officials agreed to share their knowledge of the private talks while asking not to be named because of the sensitivity of the historical moment.

“Party time at the expense of others in Greece has come to an end,” Lithuanian President Dalia Grybauskaite said. “Europe and the euro area are surely unprepared to pay for the irresponsible behavior of the new Greek government.”

Hard choice but realistic advice from a friend, a true blue economist, Dr. Butch Arroyo:

"There's a minuscule chance that a deal can be worked out by Sunday, but it's just that-- minuscule. Greece should now declare a general default and wipe out their debts 100%. Nationalize the banks, introduce a new drachma, force conversion of euro deposits into new drachma, get their public finances under control with sensible expenditure cuts and more serious efforts to curb tax evasion-- essentially self-directed austerity. To cushion the economic blow the government should seek aid and investment from expatriate Greeks (privatize those ports and utilities) and try to get direct financial support from potentially sympathetic countries like China, India, the US, the trade surplus countries of the Middle East and Southeast Asia, and maybe even Russia. The EU should in turn own up to their own failings and facilitate this exit by at the very least not taking any punitive measures such as rescinding Greek membership in the European economic community, and by providing humanitarian aid. The monetary union never made sense for Greece, and Greece didn't make sense for the monetary union. But they can and should remain in the EU--just not the eurozone. Preserving their membership in the European common economic area and EU nationality of their citizens will help in the coming adjustment.

It's looking to be a very hard road ahead for the Greeks. But on the upside their young citizens can now hope for growth at the end of the hardship. It has been done before-- Argentina in 2002 and before that Malaysia in 1998 were able to survive being cut off from world capital markets and were able to grow again within four years of their crisis. Much will have to change internally to get there. I only hope for them that the Tsipras government or whatever government comes after can rise to the enormous challenges ahead."

I agree with Butch. The Greeks should end their hypocrisy and opportunism of getting money from the Eurozone countries while ignoring the conditions set by their Euro creditors. Call it a spade. If they must ignore the austerity conditions, they should be consistent and ignore, dump the Euro as well. They will get more respect from other countries if they become more realistic than continuing the hypocrisy.

A good chart from The Telegraph, Europe is blowing itself apart over Greece - and nobody seems able to stop it, July 07, 2015.

The Greek majority should kick out socialist thinking in their minds. Tsipras and Varoufakis are just the embodiment of their socialist aspiration. They can never socialize wealth forever. They can only socialize poverty forever.

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See also: 
Drug Price Control 23: Greece's Pharmacy Nightmares, January 13, 2012 
Weekend Fun 34: Greece to Become a Social Network, May 19, 2012 

Fiscal Irresponsibility 21: Eurozone Debt, GDP and Unemployment, March 06, 2012 
Fiscal Irresponsibility 24: More on the PIIGS and European Debt, May 16, 2012

Fiscal Irresponsibility 28: Greece's Public Debt and Populism, February 09, 2015 

Fiscal Irresponsibility 29, On the so-called DBM "Underspending" in 2014, June 20, 2015

Fiscal Irresponsibility 28: Greece's Public Debt and Populism

The most indebted, most fiscally irresponsible government in Europe, Greece has been hugging international news recently because of its huge public debt, and the huge bail out money given by many governments to  it. This useful chart was sent by a friend, Luz. I think she got this from The Economist, am not sure.

Three years ago, Greece's debt/GDP ratio was already above 150 percent. No sensible economy would dare touch that zone unless the bulk of such debt are domestic, like Japan's.

source: Intl. Business Times,February 25, 2014

Regional economic community (EC) and blocs like the ASEAN EC (AEC) can learn lessons from the case of Greece and the European EC (EEC) so that such mistakes should not be imitated and repeated. Subsidizing a spend-spend-spend, borrow-borrow-borrow economy to protect the regional currency and stability of the whole bloc creates huge moral hazards (dependency, entitlement mentality, related) problems.

source: http://www.bloomberg.com/news/articles/2015-02-02/greece-seeks-third-debt-restructuring-who-s-on-the-hook

(Note: I copied that link and chart this morning. When I checked it tonight, it says "404.Page not found", so Bloomberg took  it down, for some reason/s)

Why is Greece in this deep trouble"

An article from BBC has a good explanation:

Greece was living beyond its means even before it joined the euro. After it adopted the single currency, public spending soared. Public sector wages, for example, rose 50% between 1999 and 2007 - far faster than in most other eurozone countries. The government also ran up big debts paying for the 2004 Athens Olympics.

And while money flowed out of the government's coffers, its income was hit by widespread tax evasion. So, after years of overspending, its budget deficit - the difference between spending and income - spiralled out of control.

source: BBC, Eurozone crisis explained, November 27, 2012

A populist, anti-austerity, socialist-leaning government won last month led by new PM Alexis Tsipras. He talked tough, suggesting that he would call for huge discounts in paying the public debt. But the Finance Ministers of Germany, France, other huge EU lenders countered, "Greece must pay."

With some twist, PM Tsipras agrees to honoring its debt and some spending cuts like "trimming ministerial benefits like cars and selling one of the prime minister's aircraft." Good move then, 

The main problem here and in many other countries is government over-spending, living beyond its means, over-subsidies, over-welfarism and populism. For decades. 

Huge debt is nothing but accumulated wastes and profligacy. If previous spending financed by debt was productive, then the economy should be able to have a balance if not fiscal surplus, and pay back old debt.  

The big question of how to pay that mountain of debt is not so  much addressed to the  new Greek leadership, but the Greek people themselves. Is it too much to ask for huge public spending cuts, especially in  subsidies and  pension, if their government does not have the resources to sustain funding them? If they say Yes, then are they prepared to pay more taxes, more regulatory fees, more mandatory contributions, more fines and penalties?

Most likely people will  say No, or "Yes but tax only the super rich". But the very rich have many ways to adopt. Like negotiating  their way out as they have access to the  best law firms, accounting and  PR firms. Or they can  simply leave the country with their wealth. This already happened in France, when PM  Hollande imposed the 75 percent income tax on people who earn 1 million  Euro a year or more. Many super rich French businessmen surrendered their French passports and  acquired new  ones in Switzerland, Belgium, UK, Russia, etc.

A highly welfarist and  populist government invites lots of corruption. First, in corrupting the people's values, the culture of state dependency and entitlement thinking. Second. in corrupting politicians, legislators and the bureaucracy's values, that over-taxing other people  is ok, it  is  fine,  in  the name of fighting inequality and pampering the culture of envy.

Governments should shrink, spending, taxation and bureaucracies. The public must reclaim their bigger role in  running their own  lives, and the finances to sustain their own lives, their households and communities.
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See also: 
Fiscal irresponsibility 12: More on US debt default, July 28, 2011

Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011 

Fiscal Irresponsibility 26: On the $1 B Philippine Loan to the IMF, June 27, 2011 

Fiscal Irresponsibility 27: PH's P2.6 Trillion 2015 Budget, June 10, 2014

Pork Barrel 10: Bloated Budget, Wasteful Government, June 02, 2014

Pork Barrel 12: Why DAP is Wrong, July 29, 2014

Fiscal Irresponsibility 25: Spain Panic, More Eurozone Woes

Just a continuing proof that BIG government is wrong, is also the continuing debt and financial turmoil in Europe. Of course, the same heavy debt burden is also experienced in North America, Japan and other developed economies, regardless of their forms of government -- parliamentary, presidential, federal, centralized, unitary, etc.

Here are some news headlines yesterday, June 5, from BBC, CNN, FT, WSJ. They look self-explanatory.

A good chart from The Economist, Crunch Time, May 28th 2012.

...According to The Economist's credit-crunch index, credit is now tighter in the euro area than it was at the height of the financial crisis (see top-left chart). This is having a detrimental effect on the real economy, as demonstrated in the following three charts. When the index was last at a similar level during 2008-09, economic output tanked, unemployment shot up and stockmarkets plummeted. Unless policymakers find a lasting and credible solution soon, it seems likely that the same will happen again.

Another chart below from the same magazine, A rebalancing act, May 22nd 2012.

GREECE is in a bind. Because it is stuck with the euro, it cannot become more competitive by currency depreciation. Instead it must lower its real exchange rate, by cutting prices and wages. This is proving a painful process. One measure of progress, unit labour costs (the average cost of staffing per unit of output), is declining and will continue to do so, according to the OECD’s latest Economic Outlook. Cheaper labour should result in cheaper goods, making Greek exports more attractive to foreign buyers and helping to improve the trade deficit. But with less money in workers’ pockets domestic demand—the sum of consumption, investment and stock-building expenditure—is likely to fall further. The OECD recommends that trade-surplus economies, such as Germany and the Netherlands, push up costs. This would make Greece more competitve, without dragging on Greek workers' incomes.

And one more chart, also from The Economist, The German motor, May 15th 2012.

(Germany's) economy surpassed expectations by managing to grow by 0.5% during the first three months of the year. As a whole, the euro area registered stagnant growth, and without Germany its economy would have declined by 0.2%. Germany accounts for about 28% of euro-area output, yet its contribution to euro-area growth has increased markedly since 2004. It was responsible for 65% of the region's growth in output on average since 2007. Meanwhile the euro zone's peripheral countries—Portugal, Ireland, Italy, Greece and Spain—have seen their contribution decline from a pre-crisis average of 45% to a drag of 10% since 2007.

Look at that, a 0.7 percent GDP growth is already "high" in EU situation these days. The economic contraction, negative change in GDP size, has spilled over beyond the PIIGS, now covering Britain and the Netherlands.

Being an advocate of lean and limited government -- for limited coercion, regulations, restrictions and taxation -- it does not make me happy either to see these figures of bad economic performance by those economies under BIG governments.  But since those governments and the respective political parties and political groups and NGOs that support them, cannot be convinced easily of the mistake of further expanding government size and costly welfarism, we have to allow the natural course of events to teach them, the public, some hard lessons.

Some libertarian anarchist friends would question, "Why have limited coercion, why not zero coercion by abolishing government entirely?" Well, sports and gun clubs, rotary and other civic clubs, village and professional associations, etc. are mini-governments actually. They have their own bureaucracies, their own set of rules and regulations with respective rewards and punishments, collect mandatory annual dues and other fees that appear like taxes. In the event of conflict among their leaders, or an inter-club (say gun club) disputes, there is a need for a bigger force with its own coercive power, to settle disputes with finality. And we are referring to the promulgation of the rule of law, enforcement of contracts, between and among people, private enterprises, various civil society organizations, as the main "raison d etre" of government.

Suffice it to say that somehow we need government, but it should be a lean one focused on implementing very few functions. Big and expansive, highly intrusive government is wrong.

Ok, one last data for now. The world's largest economies in terms of GDP size, in trillion US$ current prices, 2001, 2006 and 2011.

Source: CNN Money

* Trivia: If the basis for G8 membership is being the "world's largest economies", then Russia and Canada should be out of G8 and China and Brazil should be in. One way to correct this is to expand the association to G10 and Russia and Canada can remain. But it's all about politics by the G8 member-governments.
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See also:
Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011
Fiscal Irresponsibility 18: Greece Bailout, October 29, 2011
Fiscal Irresponsibility 19: Rich Countries' Debts, November 24, 2011
Fiscal Irresponsibility 20: Trade and Budget Balances, January 06, 2012
Fiscal Irresponsibility 21: Eurozone Debt, GDP and Unemployment, March 06, 2012
Fiscal Irresponsibility 22: China Borrows, China Lends. April 16, 2012
Fiscal Irresponsibility 23: High Debt and Unemployment and Parliamentarism Hard Sell, May 02, 2012
Fiscal Irresponsibility 24: More on the PIIGS and European Debt, May 16, 2012

Weekend Fun 34: Greece to Become a Social Network

I found this funny story today. All the cartoons I got from the web.

http://www.borowitzreport.com/2012/05/18/greece-no-longer-a-nation-announces-plan-to-become-social-network/

Greece No Longer a Nation; Announces Plan to Become Social Network

IPO Imminent for FetaBook

POSTED MAY 18, 2012

ATHENS (The Borowitz Report) – After struggling for months with an intractable financial crisis, Greece announced today that it would cease to exist as a sovereign nation and would instead reboot itself as a social network.

The new entity, FetaBook, is expected to raise much-needed billions in an upcoming IPO.

The social network formerly known as Greece announced that it would cancel its upcoming elections and instead install a CEO, a 24-year-old hacker from suburban Athens named Ciro Mavromatidis.

Speaking from the newly opened offices of FetaBook, Mr. Mavromatidis explained how the social network would be attractive to the investment community in ways that Greece was not.

“We’re keeping all the aspects of Greece that made it a cool brand – the ruins, the Olympics, the olives,” he said. “We’re just losing the things that were a drag on the Greek economy: namely, the Greeks.”

He said under the new plan, all Greeks would cease to be citizens of Greece and would instead become friends of FetaBook: “They won’t receive any government benefits anymore, but they’ll be able to grow all the imaginary food they want.”

Mr. Mavromatidis said that by converting from a nation to a social network, FetaBook will enjoy other cost savings as well.

“We Greeks waste billions of dollars a year smashing plates after meals,” he said. “Now that’s going to be done by an app.”
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And more cartoons...

Happy weekend.
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See also:
Weekend Fun 26: Jokes in PH Elections, January 15, 2012
Weekend Fun 29: Corona Impeachment Cartoons, March 02, 2012
Weekend Fun 31: Filipino Shop Signs, March 17, 2012
Weekend Fun 32: Angry Birds, Angry Taxpayers, March 24, 2012
Weekend Fun 33: Government Welfarism Moolaah, May 06, 2012

Fiscal Irresponsibility 24: More on the PIIGS and European Debt

Below are some charts that I got from various sources, on some fiscal and economic data of Portugal, Italy, Ireland, Greece, Spain (PIIGS) and the other major EU economies. I will limit commentary to the sub-heading in each chart. These images are mostly self-explanatory anyway.

(1) Declining GDP growth while rising unemployment, PIIGS.

source: NYT,   http://www.nytimes.com/2012/05/16/business/economy/leaving-the-euro-may-be-better-than-the-alternative.html?_r=1&ref=global-home#


(2) Government spending 40 to 60 percent of GDP (They need lots of taxes to finance it; taxes not enough, so they borrowed like crazy).

source: Dr. Ed's Blog,  http://blog.yardeni.com/2012/05/europes-wonderland.html

h/t: Prudent Investor Newsletters,  http://prudentinvestornewsletters.blogspot.com/2012/05/unraveling-of-europes-wonderland.html


(3) Governments of G7 countries notorious for fiscal irresponsibility.

source:  http://www.economist.com/blogs/graphicdetail/2012/05/daily-chart-4


(4) 13 European economies have unemployment rate of 10 percent or higher

source:  http://www.economist.com/blogs/graphicdetail/2012/05/european-economy-guide

Meanwhile, in a facebook discussion, my German friend posted that one has to "question the collective wisdom of markets a bit when you see them panicking on the news about Greece..."

I think those bankers and market traders were just watching how much other EU governments (Germany, France, Belgium, etc.) would use their taxpayers' money to bail out Greek pensioners, welfare dependents and the huge bureaucracy. Meaning if more taxpayers' money from other European countries are expected to flow in, those bankers and stock traders will do their usual stuff. If less taxpayers money from other countries are coming in, they will panick and head for the exit. So its a question of how much moral hazards problem is being contributed by those bail out money from other European taxpayers. The bankers and traders mainly react to those moral hazards problem and do their thing as profit-maximizing or loss-minimizing individuals.

Governments created those huge public debts, they are not personal or private debts. These are accumulation of past over-spending and excesses. So the bankers and market traders are watching how much of those excesses in the past will be reformed and thrown away, or how much will be retained or even expanded, via bail out money from other European (or Chinese) taxpayers. Internal reforms like deregulation, liberalization and privatization of some (or many) government assets, and more personal responsibility in many social sectors, do not seem to be highlighted there.

Fiscal irresponsibility, spending always larger than revenues,  living beyond one's means, heavy welfarism even if revenues are not enough to sustain it, reliance on endless borrowing. These are the marks of statism bordering on near socialism policies.

* See also Fiscal Irresponsibility 23: High Debt and Unemployment and Parliamentarism Hard Sell, May 02, 2012

Fiscal Irresponsibility 21: Eurozone Debt, GDP and Unemployment

Europe and Eurozone's fiscal problems continue to wobble their macro economy as citizens keep paying more taxes and fees while their governments keep piling up more debts to the already high debt stock. Below are screen shots of a CNN feature, "Eurozone Crisis: How the figures stack up",  http://edition.cnn.com/SPECIALS/business/euro-crisis/index.html?hpt=hp_c1

All data accurate as of January 11, 2012.

(1) Debt/GDP ratio

Greece leads the pack in this infamous category. Out of the 17 economies here, 12 have exceeded the Eurozone cap. France and Germany's ratio at 83 percent of GDP.

(2) GDP size, $ billion

The largest economies, Germany and France, naturally are the one which have the biggest capacity to bail out the most troubled member-country of the Eurozone. Germany's GDP size in 2011 was $2.567 trillion.

(3) GDP growth rate, 2011

Last year, Greece and Portugal's economies have contracted, and only five economies were able to grow by 2.9 percent or higher. Heavy debt load will naturally lead to lower economic outlook and low or negative GDP growth.

(4) Bond yield, percent

Greece, Portugal and Ireland have breached the "danger zone" in terms of high interest rates for their new debts. Unless the new debts are able to really improve the overall economic productivity of the people and hence, improve the capacity to pay the old and new loans, new borrowings will only further worsen the problem.

(5) Unemployment rate, percent

More debt, more economic uncertainty, more unemployment. Spain's 21.3 percent joblessness rate is really troublesome.

(6) Youth unemployment

The situation is even worse for youth unemployment, with 11 out of 17 economies have 18.3 percent or worse in youth unemployment rate.

The governments of those heavily indebted countries in Europe and elsewhere like the Philippines, are not exactly "helpless" and "optionless" aside from more borrowings. Those governments have lots of assets, like government-owned or controlled corporations, banks and other financial institutions, lands and national parks, universities and hospitals, to sell and privatize. The governments will not abolish these, they will only be sold these usually monopoly bodies to private enterprises. Such privatization should be accompanied with deregulation so that it will not result in government monopoly to private monopoly.

Selling those assets are a lot more acceptable to the average citizens than more taxation. But I can imagine the opposition to such proposal by the employees and officials of those government-owned and controlled bodies and assets, especially for socialist-inspired or leaning governments.

But there should be a limit and stop to the endless borrowing mentality and policy. Because there is also a limit to the capacity of lenders, be there individuals, private enterprises and banks, or foreign governments. No one would keep lending to someone whose capacity to pay back in the future is next to impossible.
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See also:
Fiscal irresponsibility 11: US debt default talks, July 18, 2011
Fiscal irresponsibility 12: More on US debt default, July 28, 2011
Fiscal irresponsibility 13: Obama on debt limit, 2006, August 02, 2011
Fiscal irresponsibility 14: Debt crisis and government failure, August 08, 2011
Fiscal irresponsibility 15: Philippine government budget 2012, August 08, 2011
Fiscal irresponsibility 16: On government bail outs, September 11, 2011
Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011
Fiscal Irresponsibility 18: Greece Bailout, October 29, 2011
Fiscal Irresponsibility 19: Rich Countries' Debts, November 24, 2011
Fiscal Irresponsibility 20: Trade and Budget Balances, January 06, 2012

Drug Price Control 23: Greece's Pharmacy Nightmares

Governments' heavy intervention in the pricing of privately-produced goods and services like medicines often create more problems than solutions, more troubles to patients than treatment. This is because companies, enterprises and individuals have different product characteristics, quality, cost of R&D (if any) and production, and pricing. When government steps in, it thinks a one-size-fits-all policy will apply to all players.
I have discussed these issues in the past in this blog.

Here is the case of Greece, from  http://www.bloomberg.com/news/2012-01-10/greek-crisis-has-pharmacists-pleading-for-aspirin-as-drug-supply-dries-up.html.

The report said,

The reasons for the shortages are complex. One major cause is the Greek government, which sets prices for medicines. As part of an effort to cut its own costs, Greece has mandated lower drug prices in the past year. That has fed a secondary market, drug manufacturers contend, as wholesalers sell their shipments outside the country at higher prices than they can get within Greece.

Strained government finances only make matters worse. Wholesalers and pharmacists say the system suffers from a lack of liquidity, as public insurers delay payments to pharmacies, which in turn can’t pay suppliers on time....


Austerity measures imposed to address the financial crisis may paradoxically be making matters worse. Greek wholesalers now have more incentive than ever to sell drugs outside the country after Greece implemented a law last year further reducing prices. The law sets prices of medicines according to the average of the three lowest charges in 22 European Union countries, part of an effort to trim a health bill that in 2010 totaled more than 13 billion euros, or about 5 percent of GDP.


Parallel Trading

Parallel imports peaked in 2004, then flattened out about two years ago once drugmakers imposed quotas of the maximum amount of medicines they think the Greek market will need, said Kobelt, whose Brussels-based association represents companies engaged in the trade. Still, if pharmacies can’t pay, it makes economic sense to ship the drugs back out again rather than let them languish on wholesalers’ shelves, he said.

Kobelt said he’s seen boxes of Bayer AG (BAYN)’s Aspirin in Poland that originated in Greece, suggesting that the medicine fetches higher prices in eastern Europe.

“Even Polish people pay more than Greeks for Aspirin,” he said. “That is the recipe for parallel trade, I’m sorry to say.”

Novo Nordisk A/S (NOVOB), based in Bagsvaerd, Denmark, is a case in point.

“We are competing with our own products,” said Mike Rulis, a spokesman for the company.

Novo stopped selling some of its higher-priced insulins in Greece for about a month in 2010 after the government cut prices by about 25 percent. The drugmaker now ships in the same volume as before the cuts, yet pharmacists are running short of insulin, Rulis said in a telephone interview....

There you go. Another case of "cheap but not available" products. If a company will earn more by exporting their products abroad than selling them domestically, they will do so. Some people and quarters will object to this practice, so they will propose another round of government intervention after price control: export control. This will create two new problems. First is more government corruption. The implementors of export control are just people, they can be bribed if the price is right. Second is outright closure of a company, even temporarily, since there is no use operating at a loss.

The problem of "cheap but not available" is also happening in many rural drugstores in the Philippines and elsewhere. Some private drugstores buy on those cheap drugs sold by government-sponsored Botika ng Bayan or Botika ng Barangay, when the latter run out of supply, the private pharmacies, or often just miscellaneous shops or "sari-sari stores", sell those drugs at a higher price.

There is a difference in the drug price control policy design between the Philippines and Greece. In the former, only 21 drug molecules, among the most popular prescription medicines in the country, covering several dozen preparations were affected. In Greece, it's implied in the news report above that many if not all drugs were covered. Different designs but the same wrong policy that produce the same wrong results.

Price control is slapping penalty for successful and more effective drugs. When government penalizes formal and officially registered businesses, informal and unscrupolous businesses come in, with a distorted social result.
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Meanwhile, here is an index of my papers on this subject last year:

Drug price control 1: IPR and taxes on medicines, January 14, 2011
Drug price control 2: Competition and GSK experience, January 25, 2011
Drug price control 3: Cost containment and long-term costs, January 27, 2011
Drug price control 4: Blog popularity in google, yahoo and bing, February 14, 2011
Drug price control 5: Mandatory discounts and acronym politics, March 21, 2011
Drug price control 6: Exploring just one price for each drug, May 25, 2011
Drug price control 7: Pricing by drug inventors, May 30, 2011
Drug price control 8: Advertising and Govt pharma corporation, June 01, 2011
Drug price control 9: More comments on single pricing per drug, June 02, 2011
Drug price control 10: Blog posts on page 1 of Bing, Google and Yahoo, June 09, 2011
Drug price control 11: Costs, ads and taxes, June 25, 2011
Drug price control 12: Blog posts on page 1 of Google, Yahoo and Bing, August 14, 2011
Drug price control 13: Two years of price control policy, August 15, 2011
Drug price control 14: Another book review, Health Choices and Responsibilities, August 22, 2011
Drug price control 15: Price regulations board, August 24, 2011
Drug price control 16: More on Cong. Biron's Bill, September 01, 2011
Drug price control 17: Wikileaks on the planned Pfizer drugs withrawal, September 22, 2011
Drug price control 18: Wikileaks and former US Amb. Kenney on price control, September 28, 2011
Drug Price Control 19: Why is the Policy not Withrawn Yet, November 08, 2011
Drug Price Control 20: Competition, not Price Regulation, November 10, 2011
Drug Price Control 21: Illegalities in the Implementation of the Policy, November 14, 2011
Drug Price Control 22: Comparing Prices of Drugs, Diagnostic Tests, PFs, December 24, 2011