What Has Happened To The Greek Economy?

 The recent decade has seen turbulent times for economies all around the world, and perhaps the most notable of such sufferings have been witnessed within Southern Europe. Spain, Portugal and Italy have fallen into economic turmoil, but one could argue that these problems pale in comparison to those being currently faced by Greece, a country where the last 6 years have seen unemployment triple, public debt ruthlessly pile up, and the economy shrink by a quarter. The lack of money in Greece's financial institutions is such that citizens are being warned of banks shutting down their ATM services, simply because there is not enough cash to give to people who want to withdraw from their own accounts. In 2012, the situation got so desperate that the government had to secretly ship in cash from abroad to prevent a shortage.

But where did it all go wrong? Why is it Greece in particular that has gone through even tougher times than the rest of Europe?

Well, from the onset you can see that the deadly nail in Greece's economic coffin has been its borrowing from other countries and organisations such as the IMF, in order to finance public spending.

Greek public spending during the 2000s was incredibly high, especially in relation to the size of the economy and its productivity. Spending on the public sector (as a percentage of total public expenditure) was higher in Greece than anywhere else in the OECD, yet according to Paul Belkin, Derek Mix and Rebecca Nelson, there was "no evidence that the quantity or quality of the services were superior". Indeed, the nominal output of the Greek economy had grown by 40%, and tax revenues 31% between 2004-2009, yet total government expenditure grew 84% during this period. Some
argue that the Greek governments of recent decades have been 'bribing the electorate', providing public sector jobs that are overpaid in order to maintain popularity among the public- at the cost of long term economic stability.

Spending also came in forms other than public sector employment. The 2004 Olympic Games, for example, put a crippling burden upon the government of $8.6bn, contributing to debt by 2005 amounting to €50,000 per household.

What further compounded the economic struggles was the outbreak of tax evasion Greece has seen in the past decade, particularly since the financial crisis of 2008. According to a Greek Finance Ministry Report, during the initial period of crisis, the state had only taxed a third of its citizens' officially declared income. More recently in 2013, it was revealed that the state collected only half of what was due in 2012. Such tax evasion activity has been estimated to cost the treasury over $20bn a year, and it has landed Greece the rather unenviable positions of having the lowest tax revenues per capita in Europe, and according to the 2012 Corruption Perception Index, being the most corrupt country in the EU.

Greek Debt, visualised in trucks of cash.

The consequence of such public spending in spite of a lack of revenue for the government has resulted in a colossal amount of debt being collected in Greece. As of now, Greece owes €360bn to the IMF, the ECB, and numerous lenders throughout Europe, notably from Germany, France and Italy.

Theoretically, lending and borrowing usually works out for both parties. The general idea is that a country can borrow from another, and use that money to be productive and make more money, allowing them to pay back the lender and also make a profit.

But Greece's situation is far from theoretical; despite efforts by the European community to reduce its debts (in 2011, the banks had to agree to half Greece's debts to them), the outlook is not rosy for the Mediterranean nation. Its newly elected leaders, the Syriza government are being brutally honest about how they see the future and fears are escalating that they will have to default on their debts, a move that will accompany an exit from the Eurozone and no doubt a long ensuing period of turmoil and instability, not just for Greece and its citizens, but for much of the rest of Europe too.

Small Business Serial Killers- Why do businesses fail?

‘Small businesses fail because they run out of cash’ is just as helpful a statement as a doctor saying ‘The patient died because they stopped breathing’.
According to the latest Bloomberg research, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn. But why? Why do small businesses fail?

Here are five of the most common mistakes I've seen small business make that inevitably cost them their success.


Poor Management

Poor management is often cited as the number one reason for failure. Business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring, marketing and managing employees.

Dysfunctional leadership trickles down and affects every aspect of a business’ operation, from financial management to employee morale, and once productivity and morale are hindered, failure becomes inevitable.

When it comes to this issue, the first step to solving the problem, is admitting there is a problem. None of us wants to admit that we suck at managing our own businesses and teams, but unless we do, our businesses are doomed. Learn, study, find a mentor, enroll in training, conduct personal research – these are all things that can be done to improve vital leadership skills.

There must be a strong investment in leadership skills. And of course, this is something even people who have been in business for many years, need to work on. Management and leadership techniques are always evolving. So just because a single management style has been implemented for the last 40 years, it doesn’t necessarily mean that leadership is efficient.


No Website

In an age when ‘Google’ is a verb, having a website is a must. Simply put, if you have a business, you need a website. There is no discussion around that. In 2015 every company should have a professional looking website that enables visitors to easily find out what you business is about, what you offer and how to get hold of your products or services.

Businesses who don’t have websites are likely to be losing clients to those that do. And having a website isn’t enough- it has to look good, create a good impression for the business.

Failure to understand customers and prospects

Many jump into business ventures with the idea of what they want to sell rather than what people need or any specific problems they are solving. In my experience, this is the worst move an entrepreneur can make because complete understanding of the customer is imperative to a business’ success.

Just because a business has an amazing idea for a new service or product, it doesn't necessarily mean that people will be interested or willing to pay for it. Customers hold the key to success and unless they are asked the right questions, success will never be found. What is it that they want? What is it that they need? What pain do they experience that you can lessen?

The key to understanding customers and prospects is in the dialogue a business has with them. A good business will ask them questions, carry out surveys and take their feedback on board.


Failure to differentiate between customers

Unless a business has a single service or product, it will have different groups of people interested in different offerings. And even if it does only have 1 product to sell or only 1 service, chances are that people who buy it are still quite different from one another.

A fitness instructor for instance, technically only offers 1 service. However there are people interested in weight loss, others who need an instructor’s services to help them build muscle mass, a third group interested in getting in shape for a specific event. These are all people who use the instructor’s service, but their needs and preferences vary so the way the instructor communicates with them should be tailored to their specific needs.

This is where segmentation comes into the picture. Segmenting customers into groups according to their needs has a number of advantages. Amongst other things, it can help a business to:

* identify its most and least profitable customers
* focus its marketing on the customers who will be most likely to buy its products or services
* avoid the markets which will not be profitable
* build loyal relationships with customers by developing and offering them the products and services they want
* offer more targeted and personalized messages that are likely to deliver better results

A business will think closely about client base and try to separate them in groups. The criteria could be how they use its services, how often they use them, which particular services they are interested in etc.

To find out more about segmentation (and other awesome marketing techniques), check out our Small Business Growth Formula.


Failure to communicate with customers and prospects

Failure to communicate value propositions in clear, concise and compelling fashion is a sure-fire way to bankrupt a business.

Customers can’t do business with an enterprise if they don’t know it’s there. The business must reach out and communicate the benefits of its service. And it’s not just about communication itself either, the mediums chosen and the content of the messages are just as important.

Print media is slowly dying. Radio and TV? Not particularly practical unless you have a huge marketing budget. Those used to be the ways, now social media and internet advertising and the way. Think social, email, mobile, search marketing.

As for the content, well it really boils down to how well a business knows its customers. What do they want to hear about? What do they want to know? What information would be of value to them etc. Content is a huge topic, so head over to our Content Section of InTouch CRM to see how compelling copy can be written, what to write about and what are the most common mistakes people commit with regards to content.


By eliminating these risk factors, a business is well on its way to success without falling victim to the intimidating 80% fail rate of small businesses in their first year of operation.

Do you run a business? What issues did you face that could have cost you your business? How did you resolve them? I'd love to get your comments and hear about your experiences.



About the author: Didi Zheleva is the Content and Digital Marketing Executive for InTouch CRM- the leading sales and marketing automation provider for small and medium-sized companies.

Government Regulation Gone Wrong?

A 2013 report showed France to be quite the bureaucracy- it claimed that over 400,000 directives were being enforced, ranging from how far a postbox is allowed to stick out of a wall to how much boiled egg a kindergartener can eat at lunch time. 

The examples seem petty, but more serious regulation is coming to the cost of small town and village budgets- for example a law enforced making all pavements at least wide enough to allow two wheelchairs to pass. 

Of course, this is not a bad idea in itself, however when Paris enforced this on every French town or village, it becomes a problem- in many cases this blanket ruling is uneconomical, perhaps if there are few disabled people in the area or few people altogether.

According to Michel Therond, mayor of 25 years of the small town Albaret-Sainte-Marie, he gets letters with new regulations or stipulation from every time he opens his mailbox.

In many cases regulation is not as disputed- regulations on the minimum drinking age, or that businesses must hire employees regardless of any disability are largely accepted by society. However this excessive bureaucracy can have damaging effects on a country’s economy- it can mean managerial-type people are employed with high wages to not do very much, it can put pressure not necessarily on the cities, but smaller town or village councils- and it does not always work.

In Mexico City, at the time of a great pollution problem (that still exists in part today) a regulation was enforced that aimed to reduce car use and thus emissions and so on. So the government created 'Hoy No Circula' (literally meaning Today it (your car) does not circulate)- a legislation that stated that cars with only cars with certain numberplates could be on the road on certain days- to bring this example to england you could say that on Mondays, Wednesdays, Fridays, only cars whose number plates begin with letters A-M can drive, and on the other days, cars N-Z. 

In Mexico City however, this plan backfired- it’s a typical example of what is known as the Cobra Effect. Most people needed their cars everyday- to go to work, do shopping, go to places where cars were the only reasonable, comfortable way to get there. So people didn’t start walking or taking the bus on days when their car could not be on the road- instead people just bought a second car, with a plate that would allow them to go on the days they previously couldn’t- granting them car usage for the whole week. It was quite an ingenious way of avoiding the regulation.

However we must remember that most people of Mexico City were not wealthy- so the second cars these people did buy were more often than not old beat-ups- whose emissions were even worse than their first cars. The result? Not necessarily fewer cars on the road, but instead older, more polluting cars on the road. This regulation did not last long, unsurprisingly.

This was the Cobra Effect- the origins of which I’ll briefly explain in another article.

So bureaucracy can be damaging, that’s for sure. Regulation may be necessary in areas, but like all things, in careful measure.

SOURCES:

French bureaucracy effect on small towns 

http://www.theguardian.com/world/2013/apr/30/government-rules-hinder-france-growth

'Hoy no Circula' regulation http://geo-mexico.com/?p=2343

Driving Restrictions and Air Quality in Mexico City www.rff.org/Publications/WPC/Pages/08_15_08_Driving%20Restrictions%20and%20Air%20Quality%20in%20Mexico%20City.aspx Lucas W. Davis

Does Government Debt Actually Harm Future Generations?

Tom Goldsworthy

The USA's national debt, visualised if it were in stacks of cash.

Does government debt harm future generations, as it is often argued? Government borrowing is argued to be immoral because of the supposed burden it places on our children, and our children's children, and so on.  Higher debt-financed consumption today makes future generations poorer tomorrow, so the argument goes.  An article in the Telegraph last year entitled, 'It's time to come clean about our national debt' used this very same argument.  Liam Halligan, the article's author, said:

"Why should we borrow so much, foisting our profligacy on our children and grandchildren...A spiralling national debt isn't only bad economics, but is also morally repugnant."

Unfortunately, many would point out that the economic logic behind the above argument does not completely hold.  In theory, government debt need not necessarily leave future generations any worse of at all overall - net.  This is because, for every pound the government borrows, there must be someone on the other side lending that money.  So, assuming all government debt is held only domestically, the 'burden' on future generations will be zero.  While some parts of the population will pay higher taxes to service the debt, another section will receive interest payments for lending the government that money in the first place (and these two groups are likely to overlap).  Of course, there are many other reasons that excessive government debt may be undesirable in terms of its effects on future generations, not least the distributional consequences, but in terms of the question of a net burden on society, the case does not hold.

Having said that, around 1/3 of government debt is in foreign hands, and so there will be a net 'burden' on society in the future to an extent.  The assumption that all government debt is held domestically is not completely accurate in Britain.  

Although, even then the argument over whether government debt burdens future generations is not settled.  It depends on how the government spends the money it borrows.  If it is being used to finance short-term consumption, then, yes, the fact that around 1/3 of our debt is foreign owned will mean that we are enriching ourselves at the expense of future generations. But, if the money is used to finance vital, beneficial long-term investments in, say, infrastructure, then future tax payers will feel the benefits of that spending, as well as the costs, and so not necessarily be worse off overall.

So, while in theory government debt needn't leave a net burden on future generations, in reality it probably will to an extent.  However, as shown, when government debt is domestically held (as 2/3 of British government debt is), hyperbolically stating that government borrowing is 'morally repugnant', irresponsible and so on, is clearly a huge exaggeration.  As the economic logic shows, the majority of British government debt will, in fact, not leave future generations worse off.

Tom Goldsworthy is the founder and editor of The Economic View, a blog that aims to provide the 'economic view' on current events, analysing topical issues with the economist's toolkit. 

12 Ways A Stronger US Dollar Affects The Global Economy

During the last few years, the US dollar has grown in strength. Uncertainty about the world economy has led many investors and others to turn to the US dollar. Because the greenback is backed by what many consider the most stable tax base in the world, it is considered very safe. On top of that, the US economy is still the largest, and the greenback is still the de facto global currency. It’s hard to argue against the viability of the US dollar, and with all of the uncertainty right now, it’s not surprising that many turn to the greenback for a reliable investment.

However, a stronger US dollar has very real impacts. For decades, the dollar was weakening relative to other currencies. But now, the situation has changed.Even  if the change ends up being only temporary. here  are some of the ways a stronger US dollar affects the economies of the United States and Europe:

1. US Domestic Industries Struggle with Input Costs

For US companies with foreign workers in developing nations, a stronger dollar means input costs related to labor are smaller, since a stronger dollar can buy more of a weaker currency. That’s not the story in the United States, though. With a stronger dollar, it means that US domestic labor, paid for in US dollars, is more expensive. There isn’t a lot of flexibility for these types of companies to compete on price without seeing thinner margins. As ISM falls, there is potential for GDP growth to slow as well.

2. US Exporters Likely to See Losses

Earnings season once again reminds us that US companies exporting to other countries are likely to see problems related to a stronger US dollar. With the dollar stronger relative to other currencies, it means that exporters have to lower their prices in order to prevent buyers in other countries from turning to less-expensive alternatives. This impact on US company earnings can mean a lower stock market, as well as other economic consequences.

3. European Companies Can’t Raise Prices

The ECB has been trying to keep the eurozone economy on life support since the sovereign debt crisis. Recently, the ECB instigated a quantitative easing program to help stimulate the economy with the help of inflation. However, a stronger US dollar means that it’s going to be harder for European countries to raise prices, even with the help of a policy that encourages inflation. This means a difficult time for European companies and earnings, even if eurozone countries gain a little help in the realm of export.

4. Some European Exports Might be More Attractive

With a stronger dollar on tap, some European exports might be seen as more attractive. However, this may not happen to a significant  extent unless EUR/USD actually reaches parity – or the dollar strengthens to the point that it is worth more than the euro. If the dollar’s rally continues, the eurozone might get a little export help as more buyers turn to more moderately priced goods from a weaker currency. That could help the eurozone economy recover a bit, and be useful in the event that European companies can’t raise domestic prices.

5. Germany Likely to Benefit From Exports

The German economy is likely to be the biggest winner from increased exports. German exports will be cheaper and more attractive, thanks to a strong dollar. While this is likely to help the eurozone economy overall, the fact of the matter is that it is also likely to continue to widen the gap between German economy and the eurozone economies on the periphery.

6. US Consumers See Cheaper Fossil Fuels

During the last few years, as oil prices have risen and fuel has become more expensive in the United States, strides toward an economy less dependent on fossil fuels have been made. However, now that the greenback is gaining strength, oil, which is denominated in dollars, is lower in cost. With cheaper fossil fuels comes a shift away from the development of the sustainable energy economy, and that could impact the overall economy down the road if oil prices rise again.

7. Oil Doesn’t Fall as Much for Europeans

While oil prices are lower in Europe, because of a stronger dollar, the difference would not be so  great. The currency difference means that the drop wouldn’t allow European consumers to keep as much money in their pockets (for spending on other things) as US consumers have.

8. European Tourism Industry Grows

Eurozone countries are seeing increases in their economies thanks to tourism from the United States. US tourists are visiting eurozone countries because it’s cheaper for them to do so, with the value of the euro down relative to the value of the dollar. European economies might see a little extra boost in tourism, as long as the dollar remains strong.

9. Fewer Tourists to the United States

Of course, the flip side to a growth in tourism in eurozone economies is a decrease in tourism to the United States. A stronger dollar means it’s more expensive to visit the United States, something that might pinch the American hospitality industry.

10. Cuts to US Imports Could Keep Inflation in Check

The Federal Reserve has a target inflation rate of 2.0%.. Right now, the inflation rate is nowhere near that level, and it’s not likely to do so anytime soon., because the cut to import prices (a stronger dollar means that imports to the United States appear cheaper to consumers and others) will keep inflation in check. While the Fed has said it will look at a range of factors – including unemployment – before raising rates, there really isn’t much reason to raise rates as long as other factors keep inflation in check.

11. United Kingdom Acts as an Economic Bridge

Even countries not involved in the eurozone are feeling the impact of a strong US dollar. The United Kingdom has been a sort of “go between” since the dollar has strengthened. The pound has weakened relative to the dollar, but remains strong relative to the euro. Britons can add to the rise in tourism seen in the eurozone, and continue to act as an economic bridge between the United States and the eurozone.

12. Russia Sees Mixed Results

Another European country impacted by the strong US dollar, but that isn’t using the euro, is Russia. Russia sees mixed results from a strong dollar. On one hand, a strong dollar means better export numbers for the relatively weak ruble. On the other hand, though, the strong dollar is driving down oil prices, and that hits Russia in one of its biggest economic supports.

This article was written by Miranda Marquit, and provided by Andriy Moraru- editor at EarnForex. Check out EarnForex if you want to gain a better understanding of how currencies and economic indicators work together, and how you can benefit from global currency moves.