subject: The Inevitable 'Hair Cut' In Europe An Interviews With Dr VK Tsitsiringos, Part 1 [print this page] The Inevitable 'Hair Cut' In Europe An Interviews With Dr VK Tsitsiringos, Part 1
In this article we will look at the European Crisis and interview with Dr V Tsitsiringos a expert on the subject.
KP: Dr.Tsitsiringos., may I call you Dr.T?
Dr.VKT. Certainly. A lot of people have problem with my last name.
KP: Thanks, Dr.T. I wanted to ask you about the Greek and European Crisis.
Dr.VKT. What initially was seen as a crisis in Greece alone, or even as a crisis in Greece and Ireland alone, it is now clear that it is a crisis all through the Eurozone.
KP: Can you describe for me what this means?
Dr.VKT. As regards the economic crisis, things are relatively simple. Greece has a budget problem. Ireland has a banking problem. Portugal has a problem of private debt. Spain has a problem all over. But while problems in individual countries vary, the consequences are all the same: all four must make painful cuts and draconian public spending.
KP: Why is that?
Dr.VKT. The usual way to compensate for the effects of austerity is the combination of budget cuts in currency devaluation. The currency depreciation enhances the competitiveness of exports, thus replacing the squeeze on domestic demand by increasing foreign demand. However, since none of these four countries (because of their participation in the euro does not have a national currency that can be devalued) are required instead of an external devaluation, to move to internal.
So we need to cut wages, pensions and all other costs in order to respectively increase their competitiveness and to substitute domestic demand by increasing the exterior.
KP: It seems a relatively easy concept to understand
Dr.VKT. To be honest, these four countries have shown a remarkable determination to implement extremely painful cuts; but there is an economic variable that is not possible to follow the other in the necessary adaptation, that is, the public and private debt.
KP: Can you elaborate on that?
Dr.VKT: The value of debt remains intact, with the exception of some limited liability in respect of holders of subordinated bonds, also remain intact and bank debt. This simple fact leads to a fundamental contradiction to the strategy of internal devaluation: the more countries reduce wages and costs, the greater becomes their debt. And the bigger the debt becomes, the more they must continue to cut public spending and increase taxes in order to serve this debt or the debt of banks.
KP: And this has a continuation?
Dr.VKT: This again, in turn, creates the need for greater internal devaluation, increasing further debt, and so on in a vicious circle that is plunging the country into being more and more depressed. However, if you usually give an to internal devaluation, should the value of each type of debt which already represents a very large weight limit. As regards the public debt, it should be restructured. The debts of the banks should be converted into shares, and in the case of banks that are insolvent there should be deletions. Similarly, deletions should be made for residential mortgage loans.
