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business newsGreece's Economic Depression Is Leading to Inflation
Most won't believe in this surge until it's too late.
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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. While many western economies bounce back from the Great Recession of 2008-09, Greece's economic depression continues as the economy is set to contract another 4% during 2010, which is much worse than the 2.5% contraction of 2009, and looks set to continue contracting for several more years. Greek unemployment is soaring to 12% this year, up from 9.5% in 2009, and is set to reach 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 European Central Bank and Greek government announcements, Greece is not going to meet the 3% deficit target in three years time. Meanwhile, Greece's debt mountain continues to mushroom ever higher, demanding greater interest payments to service it as a percentage of GDP despite the bailout, which effectively caps Greece's borrowing rate at 5% for three 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, can't devalue its currency or print money because it 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 cutting the government's 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 academics and blogosphere models, it should be Greece?
Nope!
Instead of deflation, the Greek inflation rate has soared to CPI 3.9% for March 2010, against a low of CPI 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%
The ivory tower theoretical economic models again fail in the real world.
While my inflation mega-trend ebook focuses primarily on the UK economy, many of the primary drivers of inflationary mega-trend impact all of the western debt-ridden economies that have no choice but to deploy inflationary mechanisms, which in Greece's case comes down to a defacto debt default -- the bill for which is being picked up predominantly by Germany and France, which signals surging inflationary consequences across the euro zone that will continue to manifest itself in a weaker euro currency as the ECB is forced to ramp up the printing presses toward the monetization of bankrupting euro-zone nations' debts.
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