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Greece Approves Spending Cuts, Europe Keeps Head Stuffed In Sand

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The Greek parliament has approved the latest round of spending cuts demanded by the rest of Europe.

The latest round will reduce the minimum wage for government workers and result in 150,000 being laid off over the next few years. It will also, in all likelihood, deepen the recession in Greece. Thus, counter-productively, the cuts may also increase the Greek government budget deficit that they are designed to decrease.

(The layoffs and wage cuts will reduce incomes and taxes, which will continue to the "vicious spiral" that has crippled the Greek economy since the beginning of the crisis.)

News of the voting set off a new round of riots in Athens, as Greek citizens expressed their outrage about the cuts and state of the economy (see some stunning pictures here).

What the new austerity will not do is solve the fundamental problem of Greece's membership in the Eurozone: Greece is not as efficient as Germany and other members of the Eurozone, and because it uses the same currency, it cannot devalue its currency to become more competitive.

The only long-term solutions to the problem are either that Greece withdraws from the Eurozone, which seems more and more likely and would likely be another devastating blow to the economy, or that Germany and other richer European states subsidize Greece's budget deficit.

The latter solution sounds untenable, especially considering the cultural differences between Greece and Germany, but it would actually be a normal state of affairs. As Harvard professor Niall Ferguson recently observed, rich Germans already subsidize poorer Germans, just as some richer US states subsidize poorer ones. And the advantages to Germany of keeping the Eurozone together might outweigh the costs of subsidizing Greece and other poorer countries, despite how politically unpopular the subsidies would be.

SEE ALSO: Stunning Photos Of The Latest Greek Riots.

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