Greece Economic Depression: Inflationary Consequences for the European Union-Surge in retail prices
by Nadeem Walayat
May 6, 2010
Greece, Europe’s Achilles Heel continues to implode under its budget deficit and total debt burden sending a series of strengthening shock waves across Europe’s credit and financial markets. Whilst many western economies bounce back from the Great Recession of 2008-2009, Greece’s economic depression continues as the economy is set to contract by further 4% during 2010 which is much worse than the 2.5% contraction of 2009 and looks set continue contracting for several more years. Greek Unemployment is soaring to 12% this year up from 9.5% in 2009 and is set to continue higher to 13.5% in 2011.
All of the austerity measures implemented to date are only going to narrow the Greek budget deficit to about 10% of GDP for the current year, and contrary to ECB and Greek government announcements Greece is NOT going to meet the 3% deficit target in 3 years time. Meanwhile missing from the whole too and fro is that the Greece debt mountain will continues to mushroom ever higher demanding ever greater interest payments to service it as a % of GDP despite the bailout which effectively caps Greece’s borrowing rate at 5% for 3 years.
So Greece is in economic depression carrying a huge debt burden that continues to deleverage, so why are we not hearing debt deleveraging deflation in Greece ? Especially as Greece unlike the non Euro Zone countries such as the UK CANNOT devalue their currency OR print money because they they gave up those sovereign powers to the ECB. All of this suggests that Greece should be experiencing deep price deflation as many workers are being forced to suffer 30% pay cuts as a consequence of being forced to cut the governments budget deficit to back under 3% of GDP.
Surely if there was one place on Earth where deflation should now be rampant as per the debt deleveraging deflationary academic and BlogosFear models than it should be in Greece ?
Instead of Deflation the Greek Inflation rate has soared to CPI 3.9% for March 2010, against a low of CPI of 0.5% just 10 months ago in June 2009.
Greece CPI Inflation 2010
Jan 2010 2.4%
Feb 2010 2.8%
Mar 2010 3.9%