Greece’s recent economic woes have been well publicised and broadcasted in the media. Many have watched on in bemusement, at the never ending queues of people merely trying to access their personal finance. Liquidity is a major problem facing the Greek government, such is the problem that Greece is standing on the precipice of an economic catastrophe. Currently levels of fuel, pharmaceutical drugs and cash are running perilously low. As of last week the southern European state held a pivotal referendum, with the Greek people firmly deciding to reject the stringent and constraining repayment demands of its creditors. Now Greece could either make a reluctant return to the Drachma, or renegotiate its repayment program. Thus could Bitcoin provide the answer in helping to increase liquidity and kick start their flailing economy?
Capital controls have hit the headlines around Western Europe. In times of unrelenting hardship, they are a necessary measure in order to keep the currency flowing into the banking system; stopping major banks from teetering on the edge of insolvency. The Bitcoin contingent state that with no capital controls on the cryptocurrency, the Greek people would have open access to their accounts, moreover they could potentially start spending this money, adding vital injections into the circular flow of income. However one only needs to look at income elasticity of demand, to realise that as income falls, so doe’s disposable income and general spending. Even if the Greek people could access more funds, they wouldn’t necessarily spend it. This is a problem as in transactions the price you pay becomes the income of another, thus leading to a greater than proportional increase in aggregate demand. Less spending naturally reduces the size, of this very multiplier effect.
One sure fact though, would be that the usage of Bitcoin would lead to reduced income generated through taxation. The taxation implications of Bitcoin have been discussed at great lengths by several nations. Reduced income via taxation would only worsen the fiscal stance of the Greek government. This is due to the fact that, general government spending has been in steady decline since the start of the Eurozone crisis. A worsening Budget deficit would only add to Greece’s already worsening problems.
Although Bitcoin interest is increasing exponentially in Greece, with many exchanges reporting as much as a 500% increase in usage by Greek citizens. Bitcoin should be viewed as a short term fix to a heavily detrimental problem and nothing more.
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