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Excessive Enthusiasm Against Greek Default

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Tuesday, 11 May 2010 04:21

The NYT had a question and answer session to inform readers about the issues surrounding the Greek crisis. Unfortunately, the experts didn't get things quite right. Carmen Reinhart, an economic historian at the University of Maryland, told readers that: "Argentina’s economy contracted 20 percent in 2001 after its default, as it was shut out of international markets for a time."

Actually, Argentina defaulted at the end of 2001. According to the IMF, it's economy then contracted 10.9 percent in 2002. It then turned around and grew at an average rate of almost 9.0 percent in the next five years. No one has such an optimistic set of projections for the Greek economy right now.

 

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written by Matías Vernengo, May 12, 2010 12:12
Exactly! And one might add that after the default, not only did Argentina grew very fast, but growth and not just debt restructuring helped solve the fiscal problems, raising revenues and leading to persistent surpluses and reduced debt. Reinhart has most of the theoretical causality backwards!
Difference
written by anon., May 17, 2010 10:04
I recall Weisbrot's analysis of Argentina's growth tale after defaulting, and an important part of his analysis rested on observing that Argentina had its currency floating at a level which suited its trade needs (sorry for such a vague description of what he said). Greece, however, is locked into the euro, thus perhaps the two countries are not comparable.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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