They’re at it again! Incorrigible.
Last night we heard Mr Junker of the European Commission tell us with admirable precision why the interest rate on the proposed new Greek bonds to be given in the swap is so important. Well, yes, you may say, of course it is important. The lower the interest rate the less you have to pay. So far, so good.
Oh yes, but it’s not so simple. And besides, all this is based on sophisticated econometric models and such which show that for every percentage of interest, the debt to GDP ratio will go down two percentage points. That is he assured us with mathematical certainty, that if we have an average of 4% interest rate, the debt to GDP ratio in 2020 will be 120%, whereas if it is 3%, then the debt to GDP ratio in 2020 will be 118%.
How about that? And indeed Mr Junker looked very pleased with himself when explaining the results of this complicated mathematical equation.
However, for a body such as the Commission and its Troika and so on who cannot forecast the Greek GDP from one quarter to the next, where on earth does he find the gall to make such statements? And with such certainty!
He has probably forgotten, as current economics tends to do, that you have to take into account all factors. He has probably based his forecast on one side of the equation alone, that is debt, and has cried ‘ceteris paribus’ (all things being equal) for all other factors. Such as GDP which happens to be the other side of the equation. That is equally, if not more, important.
However, if the EU continues to insist that Greece apply a policy of recession inducing stringent austerity, as it is now pressuring us to do in order to extend the new loan, then by 2020, Greece’s GDP will have gone completely down the tubes. So any projection of debt to GDP is nonsense when it fails to take this very real fact into account.
We need to change our country. We need to proceed with reforms. But nonsense economics as imposed by the Troika will not only never help us achieve these goals, but may well lead to “disorderly”… no, not default, but disorderly protest. Otherwise know as insurgency, perhaps even revolution.