Government Regulatory Policies make Greek Milk the most Expensive Milk in the European Union

Posted by PITHOCRATES - November 24th, 2012

Week in Review

Greeks are furious over the high price of milk.  Some cannot even afford it anymore.  While others are calling for government to do something about the high price of milk.  Which is rather ironic as the government is responsible in large part for those high prices (see Price of milk makes Greeks’ blood boil by Karolina Tagaris and Alan Wheatley posted 11/22/2012 on Reuters).

Aravanis reserves his harshest criticism for government bureaucrats, who he says make it hard for farmers to obtain land permits to expand and reap economies of scale. “It’s not as if cows are going to be grazing in their living room,” he said.

George Kefalas, who produces milk on a family farm near the northern city of Thessaloniki, said it can take two or three years to get an operating license…

Attempting direct comparisons with prices elsewhere in Europe is treacherous because so many variables are in play, such as transport costs, rents and consumer preferences.

But Eurostat says the price in Greece of dairy produce -milk, cheese and eggs – was 31.5 percent above the EU average in 2011, the highest in Europe…

Skordas said milk was expensive because of farmers’ high production costs, expensive packaging and the cost of transporting milk to remote islands and villages.

Moreover, fresh milk is sold in Greece with a shelf life of just five days, which means more trips to collect it from farms.

Dairy farmers oppose a long-standing proposal to extend the shelf life of milk to 10 days, as is common elsewhere in Europe.

This could be done relatively simply in the pasteurisation process, but Skordas said cattle breeders feared – unnecessarily, in his opinion – that this would open the door to increased competition from imported milk.

Small farms.  Government restrictions.  High regulatory and compliance costs.  If the Greeks don’t want economies of scales (like they have in the US) and want only fresh milk (unpasteurized milk less than 6 days old) legally sold then milk is going to be expensive.  Especially when dairy farmers lobby government to keep their costly regulations in place to keep out less pricy imported milk.

Only government can keep out less pricy milk.  And only government can keep the cost of milk production high by mandating a short shelf life.  As the Greek milk market is a captive market Greeks have little recourse but to pay high milk prices.  Or demand that government stop raising the price of milk with their regulatory policies.

Milk is like oil in a way.  There is little difference between batches when it comes from the source.  But once it enters the regulated market governments start adding costs.  Making some milk (or oil products) more expensive than other milk (or oil products).  The reason why gasoline prices are different in the US than in Europe is that government taxes and regulations are different.  They’re more costly in the Europe so gasoline is more costly in Europe.  Just as milk is more costly in Greece than elsewhere in the EU.

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The Greek Crisis is Now Threatening the Credit Rating of the Stronger Eurozone Members

Posted by PITHOCRATES - July 29th, 2012

Week in Review

Since 2009 we’ve been hearing about the European sovereign debt crisis.  Also known as the Eurozone crisis.  And here we are in 2012.  Despite numerous rescue packages and recovery plans the crisis continues on.  Greece can’t borrow money in the credit markets because no one believes Greece will ever be able to pay them back.  For Greece has been running some pretty big deficits.  Which has accumulated an enormous pile of debt.  Resulting from their large spending obligations for public sector wages and pensions.  They don’t have the money.  They can’t borrow the money.  So a massive Greek default is likely.  Which because of the common currency will be felt throughout the Eurozone (see Germany’s AAA rating under threat after Moody’s cuts outlook by Jamie Dunkley posted 7/24/2012 on The Telegraph).

Moody’s warned the outlook for the ratings of Germany, Luxembourg and the Netherlands is negative because the threat of a Greek exit from the eurozone and the need for greater financial support for struggling eurozone countries from the strongest members of the bloc.

In a statement, issued after the close of the US markets, it added: “The level of uncertainty about the outlook for the area and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.”

Not some pleasant choices.  Have a Greek default damage your credit rating.  Or make your taxpayers pay for another nation’s debt.  Which begs the obvious question.  Or should.  How is having other people pay for spending you can’t afford going to solve your problem of spending more than you have?  If Greece doesn’t cut their spending nothing will change in the long run.  They will need another emergency bailout following this emergency bailout.  Because this emergency bailout doesn’t address the source of their trouble.  Excessive government spending.

Keynesians encourage excessive government spending because they think it’s stimulative.  That it creates economic activity.  In fact the Keynesian solution to the Greek crisis is more government spending to stimulate the economy.  Which begs the obvious question.  Or should.  If government spending does all of this why after all of their government spending is Greece on the precipice of bankruptcy?  Huh?  Answer that one smart Keynesian person.

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The Ruins of Past Greek Overspending join the Ruins of their Glorious Past

Posted by PITHOCRATES - July 22nd, 2012

Week in Review

Greece is at the heart of the Eurozone crisis.  Or, as some would say, the cause of the Eurozone crisis.  Their deficit spending threatens to bring an end to the Euro itself.  For the only way to save the Euro appears for other Eurozone members to assume Greece’s debt.  And make their taxpayers pay for it.  Something their taxpayers understandably don’t want to do.  But the Keynesians urge such a plan.  Along with some debt forgiveness.  So the Greeks can start spending some more.  To stimulate their economy to recovery.  As if their overspending ways of the past had never happened (see Greek athletes strive for London as Athens legacy fades by Mark Lowen posted 7/22/2012 on BBC News Europe).

Outside lie many of the venues from the Athens games, others dotted around the city. Most are idle, locked up and empty, simply rusting under a baking summer sun.

They mirror the decay now felt across the country – but also stand as monuments to Greece’s mistakes: the massive overspend of the past, without any plan for later use.

They’re seen as representative of the short-term vision that got Greece into its financial mess in the first place. The hoped-for privatisation of many of the sites has been thwarted by a mix of bureaucracy and mismanagement…

They came at the height of Greece’s borrowing boom: three years after the country joined the Euro, Athens was investing in grand infrastructure projects that it simply couldn’t afford: among them, the Olympics.

What the Keynesians fail to explain (at least with a straight face) is how more such spending will not saddle Greece with more debt that they will also not be able to service.  Putting them back exactly where they are now.  Or even in a worse financial position.

During the 20th century the European countries became social democracies.  Promising a cradle to the grave welfare state.  And large public sectors.  With large public spending.  All paid for by large tax rates on the taxpayers.  Only one problem.  All of Europe’s population is aging.  People are having fewer children.  Meaning there are fewer people entering the workforce to become new taxpayers.  While a greater number of people are leaving the workforce to go into retirement.  While enjoying their pensions and health care.  Paid for by a shrinking workforce.  Add that to grand infrastructure spending and you get unsustainable government spending obligations.  Ever more government borrowing.  And a Eurozone debt crisis.  Or in other words, Greece.

The Greek government did a great disservice to their people.  They spent so much that cutting back will be incredibly painful for their people.  But it’s the spending that’s the problem.  They have to cut it.  And if they don’t do it now it will only become more painful in the future.

Greece.  Home of Athens.  The cradle of Western Civilization.  Once the greatest place in the civilized world.  The nation that pushed back the mighty Persian Empire.  Now adds new ruins to their landscape among those of their glorious past.  But they can once again restore their glory.  If they just abandon Keynesian economics.

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Greeks must now pay for their own Medications because the National Health Care System is Broke

Posted by PITHOCRATES - June 17th, 2012

Week in Review

As businesses wait with fear and trepidation for Obamacare to go into full effect we should consider what this will mean for the country at large.  More government benefits.  More government spending.  And higher taxation to pay for it.  Then we should look around the world for an example of large government spending and generous benefits.  To see if we can get an idea of how well something like a national health care system will work.  Let’s just pick a country at random.  Like this one (see Greek crisis hits hard at the pharmacy by Michael Birnbaum posted 6/13/2012 on The Washington Post).

From road-builders to priests to military suppliers, most walks of life have been affected by the government’s desperate bid to stanch the drain of euros from its coffers. Now health care is on the line, with pharmacists who are owed millions of euros by the government insurance system demanding in recent weeks that their clients pay the full sticker price for medicine. With unemployment at 22 percent and loans almost nonexistent, many people are doing without their drugs…

Under ordinary circumstances, the state health insurance system paid her pharmacist directly. Now pharmacists, fed up by delayed payments that they worry may never come, have told their customers that they need to pay cash and try their own luck at getting reimbursement from their health insurance.

Nothing is free in life.  Not even free health care.  Because government doesn’t make life-saving drugs.  Pharmaceutical companies who specialize in making life-saving drugs make life-saving drugs.  But even for them they are not free.  For they have to pay employees to make these drugs.  And they have to buy the chemicals to make these drugs.  And their chemical suppliers have their own employees to pay.  All of these costs are passed down the purchasing pipeline.  Right to the pharmacists.  Who must buy these drugs before they can sell them.  And when the government stops paying their bills someone has to pay them.  Or these pharmacists will just go out of business.  Because they’re not independently wealthy.  They run a pharmacy for living.  And simply can’t afford to buy drugs and give them away for free.

But pharmacists say they have little choice. Their suppliers, wary of extending credit in euros only to be repaid in weaker drachmas if the country gets booted out of the currency union, are demanding cash before they make shipments. And, though the pharmacies are receiving some reimbursements from the government, they are owed $188 million by the main government health insurance program, said Konstantinos Lourantos, president of the Pharmaceutical Association of Athens.

Doing anything on credit in Greece is risky business.  Because it’s not that certain if anyone will be able to pay their bills.  What makes this worse in Greece is who is paying most of the bills.

In Greece, where much of the private sector was sustained on public-sector spending, many business owners have found themselves to be unwitting creditors of the government, as payments have languished for months while their own credit has dried up, forcing them to scale back their businesses. That has made Greece’s recession, now in its fifth year, even harder to escape.

Everything has a cost.  Nothing is truly free.  Even when government provides it.  And the more the government provides the higher the taxes it takes to fund this government spending.  Relying on government spending, though, is risky.  Because tax revenue goes up and down with the economy.  During a recession there are fewer people working to pay income and payroll taxes.  And fewer people buying things to pay sales and value-added taxes.  Business revenues are down so businesses pay fewer income taxes.  During a deep recession tax revenue can fall far below the level needed to meet all government spending obligations.  Like reimbursing pharmacies.  And what do governments do during budget short-falls?  They borrow.  And Greece has.

Greece has borrowed so much that they are now a very poor credit risk.  They just owe so much money that a lot of lenders have grown doubtful that they will ever get their money back.  Which drives up borrowing costs.  Increasing the amount of interest they pay on their outstanding debt.  And as the recession lingers on tax revenues keep falling.  While the interest on the debt keeps rising.  Leaving less and less of those borrowed funds available to pay their massive government spending obligations.  And this is where Greece is.  They can’t pay their obligations without borrowing.  But they have borrowed so much that when they take on massive amounts of new debt much of it just goes to paying the interest on the old debt.  Which means they have to borrow ever more.  Increasing their interest payments on the debt ever more.  And leaving less and less for that massive government spending.

This is where debt crises come from.  Governments spending too much.  In fact it is safe to say that no government ever had a debt crisis from spending too little.  We can learn a lot from the Greeks.  In fact, we already have.  Most of Western Civilization goes back to Athens.  But we can also learn what NOT to do from the Greeks.  And a good place to start would be to repeal Obamacare.  For it’s this kind of spending that got Greece into trouble in the first place.

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The End of the Euro is Fast Approaching

Posted by PITHOCRATES - May 12th, 2012

Week in Review

This is the end.  Beautiful friend.  This is the end.  My only friend, the end.  Of our elaborate plans, the end.  Of everything that stands, the end.  No safety or surprise, the end.  I’ll never look into your eyes…again. 

Of course, Jim Morrison wasn’t writing about the Euro when he wrote The End.  And the Doors didn’t sing much about public finance.  But whenever a love affair ends it is painful.  Whether it be with your significant other.  Or a common currency that was going to change the economic order of the world.  Especially when foolishly rushing in mistaking desire for love.  The warning signs were there.  The lying.  And the cheating.  Fudging their numbers to meet the requirements of the Maastricht Treaty.  But what love can ever last when based on a lie (see Fitch Warns Euro Zone of Downgrades If Greeks Exit by Reuters posted 5/11/2012 on CNBC)?

Credit rating agency Fitch put the whole of the euro zone on notice on Friday that were Greece to leave the currency bloc as a result of its current crisis, the remaining countries could find their sovereign ratings at risk…

It said those countries were France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium…

The leaders of Greece’s once-dominant political parties were making a last push on Friday to avert a new election, which a poll showed would give victory to a radical leftist and doom an EU bailout — its second — agreed in March.

The majority of Greeks want to stay in the euro zone but voted last Sunday for parties that reject the severe terms of a bailout negotiated with foreign lenders.

European leaders say Greece will be ejected from the common currency [EUR=X  1.2914  —  UNCH  (0)   ] if it turns its back on the package of tax hikes and wage cuts.

Well, then, goodbye Euro.

You can’t stay in the Euro if you need a Euro bailout but reject the terms of that bailout.  For if you’re in need of a bailout you really can’t dictate the terms of that bailout.  That usually falls to the party who has the financial wherewithal to bail you out.  And that’s not Greece.  So sad considering so much of Western Civilization came from Athens.

So what will it take to learn that an ever expanding welfare state does not work?  How many more nations must fall?  All of Europe?  Will that be enough for the United States to learn the folly of their current economic policies?  Probably not.  They will follow Europe.  Who will follow Greece.  Buying votes with welfare spending.  Until they cross the point of no return.  Where the people will reject austerity.  And responsible governing.  Because their government taught them to.  Always assuming that the day of reckoning will come in some other generation.  Not in the current one.  But the day of reckoning has arrived.  Greece cannot borrow enough money to meet their spending requirements.  For when a government spends more than they can borrow it’s time to cut your spending.  They fudged their debt and deficit numbers to join the Euro.  And their numbers have only grown worse ever since.  And no amount of Keynesian math or class warfare can change that. 

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Faced with Unpleasant Austerity Spain follows Greece’s Lead and Riots in the Streets

Posted by PITHOCRATES - March 31st, 2012

Week in Review

The Eurozone is suffering the consequences of their social democracies.  Their cradle-to-the-grave welfare state.  And huge governments full of government jobs.  Paying nice salaries and benefits.  Greece is on the brink of bankruptcy because of their out of control spending.  And when they try to rein in that spending the people take to the streets in violent protest.  Making it very hard for the government to take back some of the free stuff they’ve been giving out to buy their votes.  And making it ever harder to avoid bankruptcy.  Now it’s Spain’s turn (see Spain Unions On Strike Over Austerity Plans by Robert Nisbet posted 3/30/2012 on Sky News).

Scores of Spanish workers have been arrested after protesting on a day of anger over a swingeing austerity drive and changes to labour laws…

In scenes reminiscent of anti-austerity demonstrations in Greece, tens of thousands held protest marches in Madrid and other cities…

There is widespread anger at moves by Prime Minister Mariano Rajoy’s conservative government – which is not yet 100 days old – to slash Spain’s debt and boost the economy.

Spain’s biggest unions called the 24-hour strike over labour reforms which make it cheaper and easier for companies to lay people off and cut wages without consultation.

The government claims they are needed to tackle the 22.85% jobless rate, which is predicted to rise to almost 24.3% this year…

The government is under pressure to reduce its budget deficit, which last year ballooned to 8.51% of all the goods and services produced by Spain.

The European Union says this must be reduced to 5.3% this year and 3% in 2013 but economists warn that growth in Spain is so sluggish and debt so high, it will be a tough deadline to meet.

There is good reason for nervousness in the Eurozone. Unlike Greece and Portugal, Spain is deemed too big to bail and British banks are also heavily exposed to Spanish debt.

With unemployment running at 50% among young Spaniards and, as a member of the Eurozone, no monetary levers to pull, the government in Madrid says it has little choice but to wield the axe once again.

Peak unemployment in the U.S. during the Great Depression was about 25%.  So Spain is enduring Great Depression unemployment.  That’s bad.  What’s worse is that those who can be the most violent in their discontent, the young, suffer from 50% unemployment.  Filling them with discontent.  And a lot of free time on their hands.  Never a good combination.

If Spain has a high budget deficit it can only mean one of two things.  Either their government is spending too much.  Or their economy cannot generate sufficient tax revenue from their tax structure.  Either taxes aren’t high enough.  Or taxes are too high and they dampen economic activity thus reducing tax revenue.  With those high unemployment numbers, though, the smart money is on ‘they’re spending too much’.  Both the government.  And the employers.  Where the unions are holding the cost of labor (wages and benefits) so high that it’s too costly to hire more employees.  Whereas if the market set wages and benefits these costs would come down to reflect that large surplus of labor out there.  And the people who want jobs could get jobs.

The problem with these social democracies is that they are anti-business.  They favor the public sector over the private sector.  But you can’t keep beating up on the private sector.  Because they pay the taxes that fund the public sector.  A lot of that unemployment no doubt are government workers they let go to meet their Eurozone requirements.  And there are probably a lot more to follow.  If they reduce the cost of labor in the private sector the private sector will be able to absorb these people.  And as the private sector grows and becomes more productive more people will be paying taxes.  And they will be able to bring down those massive budget deficits. 

But if they don’t bring down labor costs or cut government spending, hello Greece.  Which they are currently experiencing in the streets of Spain.  Which, incidentally, is the path the U.S. is currently on.

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