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SUGGESTION TO THE GREECE FINANCE MINISTER EVANGELOS VENIZELOS 2011

SUGGESTION TO THE GREECE FINANCE MINISTER EVANGELOS VENIZELOS


To:               The Right Honorable Finance Minister Evangelos Venizelos

From:            Athinarayanan Sanjeevraja

RE:               Greece Austerity Program

Suggestions:

Good Morning Finance Minister. When I wrote to you in the month of June, I recommended Greece must continue on the path of reform - a refurbished economic structure is essential to restore growth and competitiveness along with an austerity drive to restore the budget to primary surplus. Whenever deficit and debt of a country get out of control, fiscal consolidation must occur in order to stabilize the economy. This means that government should run a surplus. Fiscal consolidation is having a government that controls the country not only the obvious activities of law, defense and foreign policy but also spending and taxation at all government levels. Both are goals of the austerity plan. But however the tax raises have been noted as unfair. It is a big issue. By increasing taxes, the disposable income becomes lower, thus decreasing the money demand. And this will go on until there is a balance between money demand and supply.

Another big problem in Greece is the lack of liquidity which is less known. The money supply which is the amount of coins and deposits that circulate in the economy is much less than the money demands.

Another problem in Greece is the lack of productivity. The unit labor costs are too high. You keep in mind, the high unit labor cost is bad and vice versa. By lowering the wage through the tax rises, the gab between the wages and productivity becomes smaller. Thus it will have a positive effect in the long run. This is where the austerity plan is roughly aiming. However you may have noticed that there is no indication about output growth.

Let me conclude it Finance Minister, your austerity plan carries immense implementation risks to address lot of the structural reasons of the Greece situation. I would recommend you to consider all sides first to build better structures, a better nation. Structural reforms, efficiency and cost cutting are the solution to the problems of Greece. To enforce the program of austerity and structural reform, you need a strong government as well as a competent and professional civil service.

Thank you very much for your kind attention to this issue Finance Minister.

Sincerely,

Athinarayanan Sanjeevraja

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