Fetishism with Numbers

Posted by Dimitris Rapidis on 25/11/12
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One of the major reasons ended up in the creation of the ballooning public debt of Greece was that the state was overlending from abroad in order to finance the total demand of the market and boost the economy, taking an excessive risk without first aiming to establish a prosperous and strong production model.

In other words the state was financing a big balloon, having also acquiring the social consent, and therefore impeding real economic growth. This balloon finally burst, the problem of public debt evinced the real nature of the parasitic growth model, and the need for radical reforms emerged as a sudden necessity.

Nonetheless, there is another issue that has taken almost metaphysical dimensions, being rounded by two symbolic numbers: that of 120% and that of 2020. The first correlates with the second, as 120% is the percentage of public debt on GDP in 2020.

This is the estimation of the European Commission, first released in 2010, and dealing with the target of decreasing public debt in Greece in a 10-year scale, which is supposed to be an almost godlike aspiration and the utmost target of the Greek state. If this target is to be reached , Greece is supposed to have a viable debt. According to this estimation, I have the following two questions:

First, from where is concluded that 120% of GDP is a viable debt? From nowhere, I reckon, as the Maastricht Treaty is indicating 60% of GDP (i.e. World Bank put this limit to 90%) as the viable threshold, whereas a common man’s economic logic cannot equally deal with it. Therefore there is neither scientific justification nor simple logic to justify why 120% of GDP is a viable rate for public debt. From another perspective, someone could easily come to the conclusion that the number 120 is a strictly political limit, as this is the rate of Italy’s public debt, and in different case, if a lower rate was to be commonly accepted as the limit, Italy’s debt would be already charactertized as non-viable. This scenario should be prevented, as it could create even deeper instability in Eurozone.

Second, why is there a different model of measuring public debt in terms of GDP? Especially the International Monetary Fund (IMF) is regularly changing this rate, and many times during crucial periods of the last two years. This is definitely a strange economic strategy as it is at least irrelevant for the IMF (and the EU) to be able to predict for 2020 and be unable to predict precisely for 2013.

Fetishism of numbers turns to be one of the deepest structural deficiencies of the way the IMF and the European Union are dealing with Eurozone public debt crisis. Whether or not this Mondays Eurogroup is to reach an agreement on financing Greece with 44 billion euro, there is no solution and no perspective the debt can be viable under the current conditions. Greece will possibly receive the package, and after that the government will be once more faced with the “pathologies” of this strategy. As it is evidenced two 2,5 years now.

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