The crash of the US economy, the largest in the world, has sent shockwaves through international markets. Specifically, GDP sank in the second quarter of the year by 32.9% compared to the same period last year. It is the biggest drop since the 1940s. By comparison, the worst quarter recorded during the 2008 financial crisis, when GDP fell 8.4%, was the fourth quarter of that year. The immediately preceding low was a 10% "dive" in the first quarter of 1958!
At the same time in Germany, the economy shrank at its fastest pace in the second quarter as consumer spending, business investment and exports collapsed during the pandemic, wiping out nearly 10 years of growth. The Federal Statistical Office announced that GDP in the largest European economy shrank by 10.1% on a quarterly basis from April to June.
In fact, these developments had been predicted. The downgrades of states and companies by the leading credit rating agencies have reached record levels. Ever since the coronavirus pandemic broke out, they have reached record levels in a development that has sparked strong concerns about impending bankruptcies and debt arrears.
In fact, S&P has already made 1,190 downgrades since the beginning of the year, very close to the record of 1,326 it reached in 2009 during the financial crisis, while there are over four months left until the end of the year, a fact which means that the previous record can be surpassed. Although almost all sectors have been affected by the pandemic, the energy, aviation, travel and leisure, banking and capital goods sectors have been hardest hit.
Negative spending psychology
What is happening? It happens that the pandemic was not a simple case that would last three months and then slowly normalization would reach a explosive development rates as bank of Greece governor Stournaras and leading MP Dora Bakoyannis had told us. It so happens that the now interconnected and interdependent global economy needs rules respected by all to be followed when bold, commonly accepted solutions are needed in such crises.
It is not just the reduction of production processes. In addition, it is the psychology of people to keep expenses down because they do not know what the next day may bring. It also means that millions of jobs that are being lost and will be lost, in order not to marginalize all these workers, need courageous measures to support the welfare state.
As international trade declines dramatically due to circumstances, all the institutions of the world economy and governments must play a leading role in therapeutic development initiatives. If, for example, citizens of countries where the Volkswagen Group exports cars lose a significant portion of their income and will no longer be able to buy German cars, what will become of the group's 650,000 employees? Why do you say Herr Schauble was a staunch supporter of strengthening the economies of southern Europe?
Let us now come to our own issues. Can a dogmatically neoliberal government create tools for state intervention in the economy? Is there some example that could spark optimism? Does the government have plans to deal with the "tsunami" of auctions that will break out during the coming "black September" that essentially leaves the homes unprotected.
The Greek government fuels the fire
According to banking sector officials, the auctions for the last four months of 2020 are expected to reach 50,000 after the expiration of the protection for first homes after July 31. In fact, analysts estimate that some 300,000 auctions could take place over the next two years unless something dramatic changes.
The budget deficit in the first half of the year was already at 6.1 billion euros, compared to the target for a primary surplus of 313 million euros and an actual primary surplus of 381 million euros for the same period in 2019. Total state budget revenues decreased by 14, 1% against the target. Is there a prudent figure in the government or its sponsors who understands what will happen in the fall and winter?
What will happen after the spike in unemployment after the end of the tourist season by seasonal workers who will not have, due to limited working time, the right to get unemployment benefits, as has always been the case in the past? What will happen to businesses and professionals who do not have savings for taxes, rents, VAT, insurance contributions?
Can public finances withstand such crisis conditions? What will happen from the contraction of domestic production in the manufacturing sector and who will fill the gaps that will be caused? Is there a private sector capable of emerging from this? Is there a fair "referee" to handle and enforce respectful rules? Unfortunately we lost. Neither the team of Kyriakos Mitsotakis, nor the state-fed sponsors and friends of the government can, or want to accept their responsibilities.
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