Economic Outlook: Lessons from Greece

By ANTHONY HALL, United Press International  |  July 24, 2012 at 11:14 AM
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With Spain and Greece dragging on equity markets to start the week, its a sure bet things will get worse before they get better.

There is no European cavalcade scheduled for this week that can arrest the most recent market disruptions, which include higher borrowing costs in Spain and Italy and an audit in Greece for which a pattern has long been set. A team of economic analysts from the so-called troika -- the European Commission, the European Central Bank and the International Monetary Fund -- jump on a plane to Athens only to discover they cannot pronounce the Greek economy dead quite yet though its breathing is barely discernible. This alarms everybody and the cycle of concern hits equity markets yet again.

In Greece, the European cure is certainly killing the patient. The international community demanded debt reduction, which meant cuts in spending, which put more Greeks out of work. Debt reduction, however, demands higher tax revenues and less spending and that certainly doesn't happen when unemployment rises.

This is something of a leap, but compare Greece to Caterpillar Inc.

In Joliet, Ill., about 800 machinists at a hydraulics plant are on strike, because the company has offered a contract that freezes wages for six years and requires a higher employee contribution toward health insurance -- another $1,900 per year. Established hourly employees at the plant, meanwhile, earn an average of $26 per hour or $55,000 per year before overtime.

Here's the rub: The company made a record profit of nearly $5 billion in 2011 and was fairly quick to give raises to the salaried staff, The New York Times reported.

Caterpillar has also suggested, but not promised to give second tier hourly workers, who make $12 to $19 per hour a raise. That is exactly where the union should focus its energy.

Nevertheless, should a company cut down on expenses when profits are up? Yes. It burns union members the company is doing well and asking for a tougher contract at the same time. But there is an alternative. Leave wages alone and wait for Caterpillar to sink. If it sinks enough, they will dodge their obligations in bankruptcy. At that point, union members will take what they can get -- those that work at factories that don't close, that is.

Yes, prosperous times, not hard times, are the time to cut back on expenses. Yes, it is shameful that Caterpillar rewards its executives before it rewards the members of the team that sweats for a living. But it doesn't change the point that profits are a reason for companies to expand, not a reason for wages to rise. It's not executive wages that should concern union members, it's some pellmell acquisition, like Caterpillar buying Saab.

Union members at Caterpillar should be concerned the executive team is sharp and honest, not whether or not their raises are comparable.

In hard times, unions must think like investors, not like workers. Would you invest in a company that paid above and beyond a competitive wage, spending profits as fast as they made them? It might sound like fun, but it certainly doesn't sound safe.

How does this relate to Greece? Simply put, prosperous times would be a terrific time for Greece to cut back on spending and now, during hard times, is exactly why.

Yes, it's far too late for that. Greece doesn't need a preacher now, but soon they may need a priest.

And then there is Spain, which could well benefit from an understanding that the eurozone cannot lose a patient that happens to be the fourth largest economy in Europe. It is one thing to lose a toe, quite another to lose a leg.

In international markets Tuesday, the Nikkei 225 index in Japan slipped 0.24 percent, while the Shanghai composite index in China rose 0.24 percent. The Hang Seng index in Hong Kong slid 0.79 percent, while the Sensex in India climbed 0.24 percent.

The S&P/ASX 200 in Australia was flat, rising 0.1 percent.

In midday trading in Europe, the FTSE 100 index in Britain shed 0.16 percent, while the DAX 30 in Germany rose 0.2 percent. The CAC 40 in France rose 0.19 percent, while the Stoxx Europe 600 was up 0.03 percent.

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