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Since Greece accepted the new bailout they will have to cut government employment, and employee salaries. And since a large number of Greeks are government empl
by Robelius 15y ago
Since Greece accepted the new bailout they will have to cut government employment, and employee salaries. And since a large number of Greeks are government employees, the result will be less spending. Less spending leads to a weaker economy.
If they choose to o back to their old currency, the drachma, their currency would be weak. A weak currency would lead to less spending, which leads to a weaker economy.
It's almost laughable, either way they would be, well you know. I feel sorry for the politicians right now.
- D_Alex 15y agoWell.... in the end, the underlying cause is the fact that the "social contract" in Greece - http://en.wikipedia.org/wiki/Social_contract http://en.wikipedia.org/wiki/Social_contract - was pretty much screwed up. And so they will be you-know-what, either way, until THAT is fixed up. But not for much longer.
- draggnar 15y agoThey would also have the power however to inflate their way out of any debt crisis. This is enormous leverage over any debt issuers. Lenders would be much less willing to lend to Greece, but at the same time their exports would be much more competitive.
- MaysonL 15y agoActually, a weaker currency leads to a stronger economy through more exports and greater tourist income. It only hurts if you owe foreign currenty, and are unwilling to default on those debts. See Argentina after going off the dollar peg, and Iceland after its banks collapsed.
- Robelius 15y agoBut it is the psychological effect of having a strong currency being substituted with a weaker currency that will lessen consumption. Economics is more of the psychology of the consumer than anything else, at least in my opinion.