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Home Publications Blogs Beat the Press Greece's Progress in Putting the Economy Back on Track?

Greece's Progress in Putting the Economy Back on Track?

Friday, 13 June 2014 04:48

Many people reading a NYT article on a series of Greek court decisions rejecting government austerity measures were probably surprised to see the comment that:

"According to analysts, the decisions could upend Mr. Samaras’s progress in putting the economy back on track."

It's not clear what progress these analysts have in mind. The Greek economy shrank at a 1.1 percent annual rate in the most recent quarter. While it is projected to show modest (0.6 percent) growth for the year as a whole, the most recent projections from the I.M.F. show the economy will still be 10 percent smaller than its pre-recession level in 2019, the last year covered. These projections don't show the unemployment rate falling below 20 percent until 2017. It is worth noting that I.M.F. projections for Greece have consistently proven to be overly optimistic.

Comments (9)Add Comment
written by djb, June 13, 2014 6:07
written by foosion, June 13, 2014 7:10
"on track" means cutting government spending, especially social welfare programs, reducing the power of labor and making it easier for international finance to profit. Clearly, the court decisions could upend these goals.
written by John Parks, June 13, 2014 7:28
It is not Greece that is warring with the courts. It is the troika that is at odds with the courts.

I will predict that the next step will be a "temporary" suspension of the courts by an emergency declaration.
How do you reform the system?
written by Kosta, June 13, 2014 12:27
Greece has a very inefficient public system full of graft, corruption, and vested interests which block all efforts at reform. Say what you will about the harsh and draconian measures instituted by the Troika, but a very fundamental level, Greece is in desperate need of reform. Having an external body force this reform on the country is a good thing.

Seeing the courts block elements of the reform package may not be a positive sign. Admittedly, we are not sure of the specific cases the Supreme Court of Greece is blocking, it may be that in some instances the courts are in the right. But Greece is in need of reform, and having the courts slow this reform is not a positive sign.
It's All Greek to Me
written by Larry Signor, June 14, 2014 6:03
I have never understood how the Greek people were bullshit into believing in austerity. It was obviously the wrong fix and was going to bring extra-ordinary suffering to their economic prospects. The system that needed reform was the EU, not Greece. The international banking community made the Greek situation possible, just as they set the stage for the GR. Does anyone really want to take the other side of the argument?
My understanding is that
written by Chris, June 14, 2014 10:05
the Greek people, as a rule, did _not_ accept the austerity measures thrust upon them. There were riots that paralyzed the country, for weeks on end.

Unfortunately, Brussels, at great urging from Germany, was able to impose its will at a distance. Thus at least one whole generation of Greeks will be impoverished and the ultra-wealthy will, again, come out with nary a scratch.
written by Alex Bollinger, June 15, 2014 3:05
That's what I was thinking, Chris. What are the people supposed to do to express discontent? Put fringe, anti-austerity parties in power? Riot in the streets? Oppose austerity in the media until the government tries to shut down local radio? Jeez, there's really not much left to do except armed revolt.

The lesson in politics from Greece is not that the people are willing to believe whatever their government tells them. The lesson is that the people have relatively little power in modern democracies, especially during anything that can be labeled a crisis.
Austerity makes reform harder
written by paul, June 15, 2014 4:52
What the greek experience has shown is that "austerity" (which, by the way, seems to involve plenty of cuts for regular people and not so many for the holders of capital assets) quickly becomes counterproductive. Mass unemployment and benefit cuts lead to capital flight and shrinking tax revenues even if enforcement and efficiency improve. So you end up squeezing harder and harder on the same stone in the hope of getting a little more blood.

If the troika hadn't imposed such a disaster on Greece, they would have had significantly more revenue from the greek economy to divvy up, and potentially a society far more willing to consider reform because there was something in it for them. As things are now, "reform" appears to have the sole effect of making more hard currency available for foreign bondholders.
The Troika is not the problem
written by Kosta, June 16, 2014 12:01
I think you guys are misunderstanding the situation in Greece. The Troika is not the problem. Greece created this problem, and now the Troika is trying to help them get back to a stable situation.

People talk like the Troika is imposing austerity on Greece. That is not true. Greece is broke and heavily in debt. Greece can not borrow any more money to support deficit spending. Greece has no choice but to cut back spending as they have no money. Austerity is foregone conclusion.

Greece has two choices. They can default, leave the Euro and try to manage their affairs on their own, or they can turn to the ECB, IMF and EU and take whatever help they can get.

Now we can debate the merits of leaving the Euro, and to be honest there are some benefits. But at the same time, leaving the Euro would be jarring change for the country. And lest we forget, the country would be forced to immediately balance its budget, or else print Drachmas and cause hyperinflation. It would not be pleasant. But perhaps leaving the Euro would be the better choice?

But Greece has chosen to stay in the Euro, and the Troika has provided hundreds of billions of dollars in bailout packages. The Troika has also insisted on a package of reforms, some of them harsh. However, Greece is in dire need of reform. On the whole, the Troika's program will benefit Greece.

If you want to point fingers, don't point them at the Troika, at least in its program of reform in Greece. Point them at the Greek government and its unwillingness to apply those reforms when they affect the wealthier elements of Greek society. Or point them at the ECB who raised interest rates a couple of years ago although the periphery of Europe was still struggling. Or point them at Germany who patently refuses to allow inflation, inflation which is very much needed to prevent deflation in the periphery, while at the same time is stifling wage growth in its own country.

The Troika is doing a good thing in Greece. Critics of the Troika would profit from educating themselves about Greece's situation before commenting.

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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.