Greek impact on EU recovery perception

This is an article done by one of our partners, Media Tenor, which I really like. I hve therefore republished it with their permission

International perception of EU economies

The Greek crisis has hampered the perception of an EU recovery in foreign reporting. Furthermore, it has damaged the reputation of other indebted EU economies and brought the language of the financial crisis back onto the agenda. A Media Tenor study of the foreign perception of EU economies investigates the damage caused to international media sentiment regarding EU economies.

Greece troubles bring peripheral economy state debt onto the agenda

Perception of the Greek economic crisis peaked in January with Greek Prime Minister Papandreou’s appearance at the World Economic Forum in Davos. Here, the Greek Prime minister presented a key message – Greece needed help. Fiscal policy and EU solidarity for over-burdened states have since brought the perception of the so-called peripheral EU economies, Portugal, Ireland, Italy, Gree ce and Spain, under the spotlight.

Media Tenor data shows that, as a group, the economic perception of these economies as a group fell from a slight positive 0.1% balanced rating in foreign news reports in November to -72% in February. Interestingly in this group, Greece’s balance was not the worst; Spain showed worse ratings for its economy in US, Middle Eastern, Asian, German and UK TV reporting.

The EU faced with fundamental debate: is Greece too big to fail?

The Greek crisis has also weighed on the perception of the so-called “core EU economies” of Germany, The Netherlands, France, Austria and the UK. The reason for this is that European stability, and the stability of the Euro was fundamentally called in question.

As Media Tenor researcher Michael Gawthorne puts it, “France and Germany have to decide to either bail out dissident economies, or take the hard line. In the case of Greece, Western media perception may make any decision to kick it out of the Euro, or enforce austerity messages relatively easy – Spain and Italy would be a totally different dilemma”.

Green shoots in foreign perception eroded by the crisis – return to crisis language

Media Tenor’s study shows a further unfortunate by-product of the Greek crisis for French and German perception: the rollback of positive reporting on their economies. The 2009 month by month data show that both France and Germany had been perceived in significantly positive terms since August and July 2009. However, the Greek crisis has been occupying up to 10 times the raw volume of economic coverage in non-European media - masking perception of recovery.

Gawthorne suggests that with the news that France and Germany would be the key sponsors of a bailout, positive perception of the French and German economies has been turned into a repetition of the financial crisis – but with more at stake. “Germany is once again bei ng described with the crisis vocabulary – ‘bailout’, ‘too big to fail’, ‘system relevant’. Yet these references are now not being used for rescuing companies, but rescuing whole countries – and that is not the type of threat people like to see hanging over recovery.”

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If the Reserve Bank does not do it, Gordhan should.

The ANC alliance partners have often stated that they want a drop in the bank rate but the South African Reserve Bank is mandated by Government to curb inflation and keep it at a rate of between 3 and 6 percent. Being one of the few banks worldwide owned by private shareholders (who have no say in its operation and policies), reinforces the reality that the independence of the South African Reserve bank cannot be controlled.

Currently, 5 million employed individuals are paying taxes and are therefore the productive resources in the country. With these tax payers supporting 22 million unemployed people, their role in continuing to be productive is imperative, however the fiscus paying out more than it receives is not sustainable long-term.

In order to increase tax revenues it is important to point out that government must focus on economic growth. This will reassure markets and build confidence. It will increase the tax collected and reduce spending on unemployment benefits. One cannot just tax the employed people who are the ‘productive resources’ in the economy. The more they are taxed, the less motivated they will become. By taxing them less, it will result in them spending more and there will consequently be an increase in job creation. Companies will be able to employ more people.

Politicians should therefore focus on developing policies that increase the growth potential in the country, make it easier to hire and fire people so that businesses can take that chance to employ as they know they will not be burdened with that person if he/she does not perform.

The positive impact on the Government and ultimately the country will be:

Earning more tax through PAYE, VAT and company tax;
Government will have less people to support through grants;
People will feel less dependent on the state and feel more dignified and have more confidence in themselves;
Through spending more and increasing employment opportunities, the state will be less burdened.

But what do governments do, increase the public sector, increase the deficit. And who would pay for this, the next generation who had nothing to do with the crisis or the fact that government overspent.

Tax increases can kill any recovery, as it did in Japan in 1997, but governments like these tax incraeases as it is an easier fix on the problems they created.

To conclude, Government should interfere less and have an ‘out-the-box thinking’ approach. Productive people should be rewarded and once again, by lessening taxes, consumption will increase. By improving policies and focusing on growth it will result in vital employment opportunities taking the pressure off government and growing the economy.