All Aboard the Crazy Train

Today Brazil has decided to go the way of Merkel, Abbott, and Harper inn unveiling a major austerity package which they claim is going to lift Brazil out of recession. This is fundamentally wrong and demonstrates a gross misunderstanding of how the economy works.

Here's why they are wrong in several very basic points:

1. GDP is made up of four components using the expenditure approach, Private Consumption, Investment, Government spending, and net exports. Cutting government expenditure immediately reduces GDP because it is one of the four components.
2. When people, or an organization eg government, receive income they spend a percentage of it. That expenditure then becomes somebody else's income. I receive a paycheck for $1000 and I am going to put some of it in savings, and some of it I will consume this month. I might spend $800 this month immediately on my rent, food, things I want or need which then immediately becomes the income of the person I bought the goods or services from. They then will do the same to infinity. We can mathematically calculate how much spending my increase will create with the fairly simple equation (change in income)/(1-MPC) where MPC is the percentage of income that people spend as oppose to save. If our MPC is 80% like in my fictitious example, an increase of income of $5000 from my $1000 of income.

So, if the government of Brazil wants to reduce its spending and raise its taxes it is effectively reducing the part of government expenditure that directly goes to GDP, reduces income of the people it employs which will not circulate around the economy, and this will reduce private consumption and private investment. Raising its taxes in effect will reduce the income of individuals and companies further reducing their GDP at a time when they cannot afford to.

The irony of this is that by reducing their GDP they are reducing their tax base, which will likely offset any reductions in the deficit they will get from their policies by reducing the source of their taxes. We have seen this before, and the government of Brazil should know better.

Now is the wrong time to focus on deficit spending. The first thing we need to do is get the global economy back to its appropriate growth rate, and then governments can start to reduce their debts. Actions like this are going to further reduce economic growth and prolong their current recession. It is unlikely their decision will work any differently than the other countries which have implemented this insane program.

References:

http://www.tradingeconomics.com/brazil/gdp-growth

http://www.bbc.com/news/business-34252951

Europe just looks worse and worse

Today it became almost apparent that President Hollande of France is involved in a sex scandal. Historically speaking, this doesn't look good and his impeachment is looking likely. This is a gigantic blow for the Socialist Party in France, and all of Europe.

The current political outlook of Europe is bleak. The past four years have seen the rise of radical right wing ideologues who have turned the economy from growth to depression. The economic growth rate of the European Union was -0.2% before inflation which was 2.6%, putting real GDP growth rate at -2.7% with inflation. This is horrendous. When you look at important trade blocs, the European Union is one of the largest in the world with a GDP (PPP) of $16 trillion, the United States is at $15.7 trillion, and China is at $12 trillion. The economies of China and India equal the economy of the European Union. To have such an incredibly large trade bloc undergoing a contraction of -2.7% whether it is concentrated or not is a moral crime, and the policies need to be observed at and improved on.

The current ruling party has shown absolutely no interest in changing their ludicrous policies of shrinking government budgets which are showing exactly what some basic understanding of GDP and the nature of the economy will predict, that we are all interconnected and when one part of a country or trade bloc undergoes economic policies that must be designed to destroy them the entire bloc will be damaged. That is all austerity is, an economy-killing lie, and it has completely failed in its stated goal of eliminating debt. Greece, Spain, and Italy have not seen their debt per GDP ratios go down significantly over the past four years, staying where they were, while people protests on the street and 20% of the Greek economy is gone after 4 years of economic contraction which was preceded by only one significant factor which is the grim reaper of economics, austerity.

What Europe needs is to see clear economic resistance to such idiotic policies that are proving once again how bad austerity is (as it did in the period of 1929-1933, part of 1937, and 1981-1982 in the United States when we practised austerity). The definition of an idiot, according to Albert Einstein is someone who tries something once and fails, and then tries the same action again expecting a different result. Merkel and the rest of the extremist leaders of the European Union undoubtedly fall under this definition of idiocy. The one leader of Europe's largest countries currently having a relatively strong economy to the victims of austerity who had the potential to threaten her power along with her allies was Francois Hollande but with his political future almost certainly threatened, there remains absolutely no leader of the political left in Europe.

It looks like Europe is going to have at least 4 more years of failed economic policies. This is extremely dangerous because it will feed the political ambitions of Golden Dawn who are successfully convincing Greeks that it is the Germans that are destroying Greece (and talking about governments they aren't completely wrong) which will lead them towards potentially leaving the European Union voiding the Schengen Treaty, which helps curb racism which feeds the political power of the self-described fascists in Golden Dawn, and removing trade connections with the rest of Europe which will make their economy suffer given how their largest trade relations are with the rest of the European, and people-to-people communication between Greece and the rest of Europe will suffer. All of this assuming that Greece leaves the European Union as a reaction to the idiotic policies.

Spain and Italy are in similar boats with the implementation of austerity and this can happen to them also.

I wish there was a bright spot of hope, but right now there doesn't seem to be anything that is likely to hold Europe together in the near future barring the unexpected rise of a compassionate uncompromising leader of Europe over the next 4 months which seems incredibly unlikely, which will not lead to anything good in my observations. There really doesn't seem to be anything good right now.

This also matters to the rest of the world because exports from America to Europe totalled $340 billion (2% of America's GDP, 2% of Europe's GDP) and exports from China to Europe totalled $396 billion (3% of China's GDP, 2% of Europe's GDP) and imports from Japan to Europe totalled $106 billion (2.3% of Japan's GDP) meaning that the continued fall of the European economy will be felt globally, and it should concern everyone in the world.

It's not just Europe that is looking worse than it did several months ago, it's the entire world.

Sorry to be such a bummer, but such things must be said.

Austerity is turning out to be Merkel wasting German taxpayer dollars

http://www.bbc.co.uk/news/business-25291036

I am reading this article and the one thing that comes to my mind is none of this had to happen. Everything that has happened with the European economy over the past few years was always completely unnecessary and all of the responses have been wrong.

If we review the European economy in 2008 the picture was very different. Greece and Germany (the "model good" and "model bad" economy the media loves to talk about) were doing just about as well in their economic statistics, and one wouldn't anticipate anything that Merkel has turned out to be for the world.

Then the economic collapse of the world happened. Greece and the United States had been having good economies for a good long while on paper, and all three had been running annual deficits since 2001 when the so-called "fiscal conservatives" were in power in these countries.

The reason Greece had a deficit in the first place is that the government didn't have income to pay for the goods and services people in developed countries expect. It is the same in every country where some people get all the benefits of being in the country but hide their money in income tax free countries to avoid paying money. This was why they had a deficit and besides that one factor, everything else in 2009 was not looking unusually terrible. All of the countries in the EU were looking really good.

Today there are riots on the street in Greece and Spain because their economies is so poor today.

The EU government (led by the European People's Party, EPP, the right wing organization) decided the solution to the lack of revenue for the government to provide countries was to fire millions of public workers and somehow through magic this was going to balance the budget.

But the problem was that firing millions of employees was going to dry up their spending, and the contraction expanded to the private market, which is why Spain and Greece have unemployment rates north of 20%. The only major change over the past few years has been the austerity, with crashing demand for services and businesses folding as they are unable to get income to stay afloat as the economy contracts which feeds on itself.

The European Union government took a situation that was not ideal and turned it into a depression.

What should have been done is look at the issue, Greece needs to keep borrowing more money to pay the previous borrowers which means the interest will be compounded, and if Greece was ever unable to get borrowers (which I am unaware of any time this has ever happened, it sure didn't happen to Japan with their Debt/GDP ratio over 200%, the highest in the world) it would mean they would need to find some way to pay creditors, but this wasn't happening. If Greece wanted to pay off its debt it would need to find a way to cover the debt (which is preferable and keeps a high credit rating) or write it off (and no one would ever lend to the Greek government again). The solution then is to find revenue to cover expenses. This is not what the EU Parliament mandated however, and Greece has found their economy contract in an epic proportion, because they tried to screw a screw with a chainsaw.

Greece today has a demand curve that has shrunk which means there is no money to be made by starting a business (which is how economies grow) and it needs to grow somehow.  Being part of the Eurozone, it is represented in parliament and the decisions with the central bank are made together, and as long as the EPP controls parliament they are unlikely to do measures that will move the demand curve north so that starting businesses becomes profitable. People won't start making businesses in Greece if they are basically destined to fail. They need to adopt Keynesian economics and expand the demand curve by hiring unemployed Greeks and Spaniards so that it becomes profitable to start businesses because that is the only way the economy will grow.

On top of all these mistakes the northern states now need to subsidize the southern states to grow their economies so the EU can stay strong, which will waste French and German taxes on something that never had to happen. Fiscal conservatism at its finest.

Unless if the EPP wants to destroy the EU, and if that is the goal they are doing exactly what they would want to do, because continuing austerity from parliament will turn into so much apathy towards the north and parliament (and the majority of Europeans live in the North) which has the potential to divide the European Union. The resentment has the possibility of being a powerful force to drive Golden Dawn and other xenophobic parties into power in Greece and Spain (think Franco) on the anger towards Northern European governments which will be bad for the world.

I would rather see the EU work towards getting Greece, Spain and now Cyprus on their feet. Merkel (the de facto leader of the EPP and EU) saying that they will not support Cypriot banks is what really caused the current recession which was completely unnecessary and poorly though out. If someone wanted to destroy the Europe Union they would vote for the EPP because that is exactly what they are doing. If someone wanted to start a fascist revolution the first step would be removing the Schengen Treaty and Council of Europe which will remove the peaceful regional means of communication between national government and remove the peaceful means of reconciliation which can't lead to anything good.

I really hope the EPP is removed from power in the next election after their brutal mismanagement of the world's richest continent. I may be American, but Europe is our strongest ally and largest trading partner and I plan on going back to Europe ASAP, so I have a lot riding on the next election as does everyone in the world.

One extra source:
http://www.csmonitor.com/Business/The-Circle-Bastiat/2010/0503/Why-are-Greeks-not-paying-their-taxes

The Estonian Miracle, repeatable?

Today I was reading about Estonia's economy and trying to find out what makes it so different from let's say, Greece. We have been taught by the media the past three years that the reason that the Mediterranean nations are failing economically is because they are part of the big bad Euro. However, when one looks at the information on unemployment across the Eurozone one finds that there is a wide range of unemployment ranging from 4.7% in Austria, to 14% in Ireland, and Greece is by far an outlier at 27%, the only country in Europe currently above 15% unemployment. This is really different from what the media have been implying, and compared to all countries in Africa, every European nation, including Greece, is doing extremely well in terms of unemployment. The current status of Greece nullifies the argument that Estonian economic growth is a direct product of austerity because the same claimed means of Estonia's growth are being used in Greece with the opposite effect. There is more to this story.

So, what is so different about Estonia? Well, Bloomberg spilled the beans, they are talking about massive private investment in Estonia going on right now. The equation is quite simple. Businesses move into Estonia and hire Estonians, Estonians work and have money to spend, their spending helps Estonian businesses grow by raising the demand curve, unemployment and productivity improve. The reduction of public investment in Estonia is being offset by private investment. What is happening in Greece in terms of the private sector is quite the opposite in fact. Greece and Estonia have both been practicing austerity. The difference is that while Estonia has seen the private sector come in reaction to a high credit rating and low corporate taxes, people have been fleeing Greece and their banks have run out of money, hurting the chances that they will be able to fund new businesses to put Greeks to work, which reduces one of the four major sectors of the economy (government, financial, consumers, producers/retailers).

I do agree the majority of the economy should be on a free market, I do agree with free trade balanced with human rights protections, and I think some parts of the economy that are naturally oligopolistic need to be regulated or controlled by a democratic government. The Estonian miracle is only repeatable so long as there is enough domestic and foreign investment to offset the collapse of the government's role in the economy.

The only questions remaining has to do with the implementation of a flat 20% income tax in Estonia, the only flat income tax in the world. My question is how is it going to effect their currently relatively equal distribution of wealth and how is that going to effect future growth if my concern of a less equitable economy is realized. What is going to happen to their quality and cost of health care and education in the long term if they are privatized? How much of this economic growth is being seen by the average Estonian? Only time will tell, but my knowledge of American economic history doesn't leave me optimistic.

One lesson however is clear, in the short term it doesn't matter where investment comes from after a recession, there must be investment. However, I am not certain on the effect it will have on distribution of wealth and the quality and cost of public goods. Only time will tell, and I am pessimistic about the long term because of the great potential of a skewed distribution of wealth if economic growth is only felt by a small percent of the population in the long-term which could offset growth if it is not balanced by making sure the doors of opportunity are open for all regardless of income.

The more I study economics the more I realize how balancing different pros and cons is critical, there is no one policy that works all the time, and no one absolute driver to economic growth. It is all about balance. One must counteract an excess of collectivization with privatization and an excess of privatization with some more collectivization. Bubbles must be avoided, economic growth must be positive. Even GDP growth is not isolated because it must be taken in relation to population growth. GDP per capita growth is a more useful metric, because if a country with negative population growth saw a negative GDP growth their GDP per capita growth could in fact be positive. The economist must then look at distribution of income which in the long run is a marker to determine long term stability. Estonia's case is just one more example of how it is critical for economists to look at the whole picture, not just their favorite statistic.

Study your history

Seriously though, most of the mistakes we are doing today are repetitions of mistakes our ancestors have made. There are a lot of huge similarities between today and the Great Depression, and our leaders don't seem to understand that in their religious zealotry for Milton Friedman. They are repeating the same mistakes that historical figures have made, namely Andrew Mellon (head of the Federal Reserve from 1921-1932), Herbert Hoover (US President, 1929-1933), and Heinrich Bruning (Last Chancellor of the Weimar Republic 1930-1932). Besides being contemporaneous, these three fine gentlemen (at least they would be if Friedman's guesses were correct, you need some evidence to make a theory, so I will call his writings guesses) followed the assumptions of Milton Friedman while they were in power, before they were replaced by Keynesians in the United States and Nazis in Germany. They desired a limited role for their governments and central banks to play in stimulating their economy, firing of public workers and decreasing wages, and cut government spending. If Milton Friedman was correct, the great depression would have never happened or would have finished before 1933 under their policies, because they did exactly what he and similar guessers would have them do. I hope I don't have to mention that did not happen.

Unfortuntately for the libertarian/Republican/CDU/pseudo-economics etc. movement, this didn't happen. The policies of Mellon, Hoover, Bruning and others with the same mentality led to the worst economic crisis in history. GDPs fell, wages fell, unemployment rates rose, everything that Milton Friedman says wouldn't happen given the situation did. Why do we want to emulate these three crooks?

President Obama, Chancellor Angela Merkel, Prime Minister Stephen Harper, Prime Minister David Cameron, Chairman Ben Bernanke, President Jens Weidmann, President Mario Draghi, Governor Mervyn King, Secretary Jacob Lew, General Director Christine Lagarde, and Speaker John Boehner, if you people value your legacies, please choose the right path, proven economics over unproven speculated pseudo-economics. Every single one of you has been choosing to emulate the three people I mention above, and you are all doing close to what Milton Friedman would tell you to do, either through austerity or not fighting hard enough for proven economics. Fortunately you aren't doing the last major part of the policies of 1929-1932 which was the shutting down of the global market through tariffs, which created economies that approached that of modern North Korea which is the only country to currently pursue self-sufficiency, but you have managed to do every other important policy that set the great depression in motion and kept it going those four horrible years!

I don't consider the monetarist theories valid economics because they have absolutely no proof for their claims and every single time their ideas have been done the countries that try them have been worse off in the end with higher unemployment, lower GDPs, and other major failures of the global economic system. Please switch to scientifically proven Keynesian economics as soon as you can, because the people of the world need to have a system that works, and we don't have the time or patience to disprove Milton Friedman yet again. Nobody wins with your system in the end, not even the banking crackpots who tell you to do this. We need a system that works now!

Our unemployment is at a 30 year low right now in America, don't make it go any lower!

This post was inspired by Gerald Silverberg, an economist who is willing to do the legwork and prove things before he says them. If only Milton Friedman did the same the world would be a much better place.

BEDA post #7

Oh, apparantly according the IMF I was right about the Austerity crisis

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/12/imf-austerity-is-much-worse-for-the-economy-than-we-thought/

Would you look at that, the IMF releases a report saying exactly what I posted here: http://stidmatt-views.blogspot.com/2012/07/greece-majoritys-story-and-real-story.html way back in July.

I like being right. Now stop firing Greeks, stop firing Spaniards, and embrace economics. Just as I said, and just as the IMF agrees with me, not these far-right conservatives that think firing people will improve the economy.

Contract From America, a critique

I was accused today of being someone who could join the tea party and that I didn't know what it stood for, so I decided to learn what it is for, and here is what I found on the Contract from America:

1. Identify constitutionality of every new law: Require each bill to identify the specific provision of the Constitution that gives Congress the power to do what the bill does.
2. Reject emissions trading: Stop the "cap and trade" administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.
3. Demand a balanced federal budget: Begin the Constitutional amendment process to require a balanced budget with a two-thirds majority needed for any tax modification.
4. Simplify the tax system: Adopt a simple and fair single-rate tax system by scrapping the internal revenue code and replacing it with one that is no longer than 4,543 words – the length of the original Constitution.
5. Audit federal government agencies for constitutionality: Create a Blue Ribbon taskforce that engages in an audit of federal agencies and programs, assessing their Constitutionality, and identifying duplication, waste, ineffectiveness, and agencies and programs better left for the states or local authorities.
6. Limit annual growth in federal spending: Impose a statutory cap limiting the annual growth in total federal spending to the sum of the inflation rate plus the percentage of population growth.
7. Repeal the health care legislation passed on March 23, 2010: Defund, repeal and replace the Patient Protection and Affordable Care Act.
8. Pass an 'All-of-the-Above' Energy Policy: Authorize the exploration of additional energy reserves to reduce American dependence on foreign energy sources and reduce regulatory barriers to all other forms of energy creation.
9. Reduce Earmarks: Place a moratorium on all earmarks until the budget is balanced, and then require a 2/3 majority to pass any earmark.
10. Reduce Taxes: Permanently repeal all recent tax increases, and extend permanently the George W. Bush temporary reductions in income tax, capital gains tax and estate taxes, currently scheduled to end in 2011.

The first part is already done by the Supreme Court, 5 of 9 have been appointed by Republicans.

I am going to ask the conflict theorists question for the second point: Who benefits from no restrictions on oil emissions? Oil companies.

I agree with balancing the Federal budget, but I have looked at it and except for massive cuts from the Department of Defense, it can't be done. This is something Republicans have never been behind for the past 30 years.

Simplifying the tax system. First of all, my economics textbook (written by Bush advisor Gregory Mankiw) claims that flat taxes (what they are calling for) is by its nature a regressive tax. I would prefer a progressive tax structure based on the cost of living with rates from 0% to 50% where 99% of Americans will pay less than 15% and it will be modified by states' cost of living, and capital gains will b one taxed as regular income. That will balance the budget. The Tea Party doesn't support that, it says so in the Contract from America.

5. Every department (except for the Department of Defense) is already audited. This is a moot point. Why haven't the Tea Party members of Congress (a majority in the house) proposed a bill to do this? Curious...

6. Limit the growth of federal spending, does this take into account potential disasters? If we limited ourselves from growing our services in the face of disaster, how would the government cope?

7. According to the World Health Organization, The United States pays an average of $8361 per capita on health care in 2010. Norway and Switzerland were about the same. Canada paid $5222 in 2010. Our health statistics, birth mortality, life expectancy, and others according to the CIA don't show an increase over other nations. The statistics show that our current private health care system doesn't benefit the average American. Our current system only benefits the insurance industry. They don't specify what they would replace Obamacare with.

8. If we generated our fuels domestically, they will be the same companies that drill abroad. Nothing will really change there. It will still be the same companies, and our domestic oil production is at an all time high right now. Houston Chronicle

9. Reduce earmarks. If the tea party is so against earmarks, why haven't they done anything about it? This is not the real goal of the tea party. http://www.opensecrets.org/bigpicture/earmarks.php

10. Reducing taxes. I agree and disagree here. In order to do some things efficiently, we need to do them as a country, and that means we need the government to raise money. Most of these Bush tax increases go to the rich. http://www.cbpp.org/cms/index.cfm?fa=view&id=1811 This is not going to benefit most tea party people.

Where does the Tea Party get its money? http://www.usnews.com/opinion/blogs/Peter-Fenn/2011/02/02/tea-party-funding-koch-brothers-emerge-from-anonymity has the answer.

I disagree with all ten at some extent. I wish to offer counter-proposals (that I wish Occupy would have embraced) on the same topics that are actually at issue. I have also addressed a few corruption issues that the Tea Party fails to addre

1. Move off of fossil fuels and embrace Hydrogen fuel cells as a mode for fueling transportation. They are competitive, and fulfill Adam Smith's requirement that there be competition in a market for supply and demand to work. This will drive down the cost of transportation. They also are 100% domestic.
2. Demand a balanced federal budget. Cut subsidies to lobbyists and make a strong simple and progressive tax code.
3. Simplify the tax system. Make a tax system ranging from 0% to 75% of income (most Americans won't see their tax rates go up, down probably) and put in two deductions, one for all education expenses, and one for all health care expenses. As the budget is balanced, put the lowest rates into the 0% category to encourage growth from the bottom of the income ladder. Short-selling stocks will not make your taxes go down!
4. Expand Medicare to cover all Americans. This will bring down our cost of health care by providing primary care for people who need it so that instead of going to the emergency room they can get early treatment which is less expensive. After doing this, Medicaid and Tricare will be fully abolished.
5. Audit the Department of Defense.
6. Reduce earmarks by making all elections publicly run, publicly financed, and outlawing lobbying through money in Congress. The Tea Party has not embraced this. http://www.opensecrets.org/bigpicture/earmarks.php
7. Abolish the federal handouts to the Real Estate industry by abolishing the mortgage tax deduction to raise revenue, or decrease taxes.
8. Stop sending money to nations that abuse human rights like Israel, Egypt, Saudi Arabia, and historically the Islamic Emirate of Afghanistan, Iran, and Iraq. Only send developmental aid that builds the nations capacity to grow and gets average people to be economically sustainable.
9. Elect the President through Instant Runoff Voting. Elect Congress by the Single Transferable Vote using the Gregory Method. Abolish the Senate which was only created to preserve the interests of the politically established. Increase Congress to 750 members in the one remaining house.
10. To save money, legalize marijuana. Legalize LSD. Legalize ecstasy. Increase taxes on cigarettes. http://www.mjlegal.org/cost.html This will save money and generate revenue.

Those will actually balance the budget. Most people will see their taxes decrease, the only people who will see more taxes are the ones who are paying 15% on million of dollars of income. The Tea Party doesn't support this, but it is the only honest way to balance the budget without cutting military spending.

A pig is a pig by any other name

Whatever you call it, laissez-faire, Reaganomics, austerity, corporatism, or something else, that model of economics supported by many politicians is inherently flawed. The solution this philosophy consistently has to unemployment is to fire public sector workers and bust unions. No incentives for hiring workers, no eliminating barriers to starting small businesses, no health care to those too sick to work, no training for tomorrow's inventors, and cutting basic math, economics, civics, and science from public schools increasing the time the unconnected intelligent youth have until they can start their own businesses successfully.

Austerity teaches that if unemployment is high you increase it, if small business are too rare you limit access to funds by eliminating banking insurance (the opposite approach saved the American financial sector and through that the whole economy in 2008). If this is right it would imply the solution to a drink being too cold is to put ice in it or if your meat is overcooked to keep cooking it, and that -1+-1=0. That adding to a problem will solve it. This is nonsense.

The bloggers of economics that have millions of followers need to start broadcasting this. Suicides are up in Southern Europe. The countries practicing austerity have seen their unemployment rates go up over the past two years and suicides are rising. Lives of real people are at stake in this experiment that is as unsuccessful as it was between 1929 and 1933 when America did the same thing. The longer it is done the longer the recovery will be. This is very not funny. Wake up world. All the data you need to prove this is free on google data.

Why the new bailout for Greece will not work.

Just logged on to Wikipedia today to look at the news because they always cover the biggest news stories on the top of the page and found to my delight that Greece will get a second bailout. This could have been a wonderful thing for Europe and the United States, and will be different from the first, because several variables have changed.

1 History facts
First, the first bailout was in April 2010, during that time Papandreou was Prime Minister, which except for 5 years his party PASOK had been in power since 1993. He was a highly corrupt Prime Minister and ineffective at leading his country, leading them to financial ruin and taking in almost no money. If you want a balanced accurate look at the history of this mess I highly recommend NPR's Planet Money's 340th episode from January 24th 2012 which explained the issue perfectly. The biggest issue is people didn't pay their taxes, the same reason America has a large deficit with such low spending (relative to the countries of Canada and all nations of Northern Europe) That is pretty much all you need to know about the issue.

2 Current situation.
Papademos is the new Prime Minister of Greece. He has been the Governor of the Bank of Greece from 1994 to 2002, and Vice President of the European Central Bank from 2002 to 2010. This guy is an experienced economist. This is his first political office that has not had economics as his prime function. He is also has been a Columbia University faculty member, John F. Kennedy School of Government faculty member, and National and Kapodistrian University of Athens faculty member. This guy has experience with the subject! He is 64 years old and a member of the Trilateral Commission and Academy of Athens. His school of economic thought is pro-Europe (which is good). Unfortunately he is a supply-side economist, also known as trickle down, the policy of America's most failed President in the realm of economics, Herbert Hoover. Nothing else matters. (source: http://www.bbc.co.uk/news/world-europe-15643454)

Europe is now officially screwed. America should not bail them out, Papademos as a supply-side economist will abuse it, and Greece needs to kick him out as fast as they possibly can and replace him with a Stockholm school economist. According to history, this will happen. Papademos will not save Europe.

Europe needs to kick Greece out of the eurozone now. They need to figure out how to fix their own problems, because they will not learn if they are part of the Europe. There needs to be a new resolution so that a country can leave the Eurozone while staying in the Schengen Area (the only shred of hope for the Greek economy I can see now.) because they will not solve the problems. Supply-side economics is extremely traditional, and has never solved any economic downturn. With this fool in charge of Greece and the opposition of Merkel and Sarkozy to having countries leave the Euro I fear for the world.

Greece must stay in the schengen zone though, because if New Dawn came to power Greeks need to keep contact with the rest of Europe. If Greece left the free travel zone war becomes a possibility.

I wrote this in February 2012.
I hope I am wrong.