By John Galt
August 12, 2011 – 09:10 ET
The release this morning of Greece’s 2nd Quarter GDP coming in at a minus 6.9% should be a wake up call to the central planning mentality in Brussels, but of course it will do nothing but reinforce the mandate from the European Central Bank to increase intervention and pressure on the Athens government. Although the claim that the deficit for the Greek government came in below estimates, the reality is that the rate of contraction will create a larger problem for the deficit issues and debt service than the ECB or Greek politicians dare to admit.
The other problem facing the European authorities is the rapidly increasing rate of Greek unemployment which today climbed up to 16.6% in May from 15.8% in April. If this pace continues, the collapse of the Greek economy will insure a default of unprecedented proportions, not because of the size of the default, but the demonstration that the ECB is incapable of managing a small PIIGS crisis and thus is probably going to fail to stem the issues in the other problem nations. The chart below of the unemployment situation in Greece is only masking the more severe issues about to hit the nation which started the collapse of the Eurozone:
While that chart might look impressive, the bigger problem is the fact that 60%+ of the unemployed are in the 15 to 34 year old age group:
If anyone thinks the austerity protests seen earlier this year and last year were bad, they are deceiving themselves. The government will either have to find a war to plow resources and young men and women into or be prepared for a new, more violent wave of unrest. It is impossible to have a functioning, expanding economy with both a socialist model and the a zero jobs growth for young citizens emerging from the education system into a nation with no economic future. Something will have to give and it will be fascinating to see how the austerity model imposed on the nation of Greece meets the reality of a contracting economy with high unemployment rates in the months ahead.
Because as Greece goes, so shall many of the other nations within the the European Union.