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View Diary: Austerity doesn't work: New IMF report details the damage (167 comments)

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  •  Strangely enough (1+ / 0-)
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    Yes, I did. And I read all sorts of stuff there as to why austerity is a poor choice, but not a thing as to whether or not there was some other real-world choice. Calling for a "growth strategy," as if there was such at thing readily available, merely not yet implemented, is about as useful as asking for world peace, with a result exactly as likely. And even if there had been such a strategy both available and politically possible, at this point I don't see tens of billions more standing by awaiting only their chance to be pumped into the Greek economy. So, as I said, the choices remain as before.

    •  It's called Keynesian economics. (10+ / 0-)

      Also known as countercyclical fiscal policy.  Governments -- at least those with sovereign currencies -- spend money during economic downturns to keep demand from falling through the floor.  You may recall that this is what got us through the Great Depression.  (Then again, after reading your comments, you may not.)

      Greece's particular problem is that it can't reduce its debt by devaluing its currency, a problem that exists only because it joined the eurozone.  Countries with sovereign countries, like the U.S. and the U.K., don't face this issue.

      "Ça c'est une chanson que j'aurais vraiment aimé ne pas avoir écrite." -- Barbara

      by FogCityJohn on Fri Jan 04, 2013 at 12:28:17 AM PST

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      •  You make my point for me (0+ / 0-)

        Greece does not have its own currency and now lives subject to others' financial interests. It can either continue to submit or take its few marbles and leave the game. Either way, austerity is inevitable.

        •  I think you're missing the bigger picture (5+ / 0-)

          It's not only not in Greece's interest, it's not in their paymaster's interests either (or, rather, it's in Merkel's political interests, but not in those of the German banks sitting at the far end of the original loans).  If the German banks want their loans paid back without a haircut, or, worse, default, they should be pressuring for Keynsian rather than Austerian policies.


          quis custodiet ipsos custodes -- Juvenal VI, 347-8

          by golem on Fri Jan 04, 2013 at 05:35:26 AM PST

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          •  Two things (0+ / 0-)

            1) They've already taken haircuts.
            2) Keynesian policy will require that someone want to buy Greek debt. Having been stiffed already to a fair degree, I don't see any enthusiasm for buying further into the Greek economy. Would you buy Greek bonds?

            As I said originally, it's not so much a matter of what might be theoretically in anyone's possible best interest, but of what might be feasible.

            •  Sorry, but no. (10+ / 0-)

              Keynesian policy would require that Greece's currency issuer sell debt.  In a country with a sovereign currency, that would be the Greek central bank or some similar institution.  But because Greece is part of the euro, it can't sell debt on its own.  It can't print money on its own.  That's why it's stuck where it is.

              Austerity wasn't inevitable in Greece or elsewhere in the eurozone.  It could have been avoided if the euro countries collectively had chosen to adopt growth-oriented policies to deal with the recession.  The Germans didn't want that, despite the fact that they'd implemented such policies domestically to prop up their own economy after the financial crisis.  Without German agreement, no deal was possible.  

              Merkel decided to hang the southern tier countries out to dry, a decision she made largely for reasons of domestic politics.  German voters resented the idea that they were paying money to bail out countries they viewed as irresponsible, and Merkel didn't dare rouse their ire by pushing for more expansionary policies.  Any such policies would have to be financed by the richer eurozone countries for the benefit of the less fortunate ones.  Of course, Merkel's decision is now coming back to bite her, since the economic crisis in the southern tier countries (and in the eurozone in general) means there's less of a market for German products.  Thus, her decision to force austerity onto other countries was shortsighted.  She may well pay for it in the upcoming election.

              Finally, note that while Greece had a lot of debt, Spain did not.  Prior to the financial crisis, Spain's debt to GDP ratio was not only better than Germany's, it was better than Switzerland's, the country that's always held up as the paragon of fiscal virtue.  Spain's problem was the housing bubble.  Even though it didn't have a debt problem, it's now facing crushing austerity measures.  

              Again though, I think the basic problem is that the euro has left countries without the ability to control their own monetary policy.  The eurozone will therefore either have to imitate the U.S., where richer regions effectively subsidize poorer ones, or it may well fail as a single currency.

              "Ça c'est une chanson que j'aurais vraiment aimé ne pas avoir écrite." -- Barbara

              by FogCityJohn on Fri Jan 04, 2013 at 10:10:48 AM PST

              [ Parent ]

              •  the idea of economic union without political union (2+ / 0-)
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                tardis10, FogCityJohn

                was a non-starter to begin with.

                It leads exactly to the problems being pointed out here.

              •  True of Ireland, too, if I'm remembering (2+ / 0-)
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                Rube Goldberg, FogCityJohn

                correctly. Everybody always talks about Greece, b/c everybody always wants to make some sort of moral case about irresponsible spending and how austerity is the stern medicinal cure for such spendthrift policies.

                if necessary for years; if necessary, alone

                by SouthernLiberalinMD on Sat Jan 05, 2013 at 01:04:26 AM PST

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                •  Krugman: Spain's low govt debt disprove moral case (2+ / 0-)
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                  SouthernLiberalinMD, FogCityJohn

                  Spain had low government debt before the crisis. Private debt was run up by banks (notably from Germany) lending to real estate speculators, which drove up Spanish inflation and labor costs.

                  This all per Krugman, who says that Spain is the best example for understanding the key factors, and for testing the sustainability of a largely unchanged Euro area.  The main reason that much-smaller Greece matters is that most observers expect that a Greek exit from the Euro area would spook markets so much that keeping Spain inside then would be more expensive than keeping Greek inside now.  Italy is another large country that matters more than Greece, although its circumstances are more muddied than Spain's.

                  Ireland's debt problem, although less clear-cut than Spain's, was also mainly a private one until the government unwisely responded to the original crisis by abruptly guaranteeing huge private debts.

              •  1st inflation & rebalancing; then Greek austerity (1+ / 0-)
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                Key points of the Keynesian prescription (per Krugman, Delong et al) can be summarized roughly as follows:

                1. Greek austerity should be deferred until its economy swings from the lower to the higher growth stage of the economic cycle.

                2. Before and during that austerity, since Greece cannot devalue its currency under the single currency arrangement, Greece needs an inflation differential with Germany, such as 3% inflation in Greece and 5% inflation in Germany.  This would enable Greece's production per unit of labor cost to catch up with Germany's at a rate of 2% per year.  The flip side of this cost reduction is a 3% per year reduction of real (accounting for inflation) average Greek worker incomes. This manner of arranging the catch-up and reduction would be much less destructive than the large scale reduction of employment that is presently a major element of the policies seeking to accomplish such income & cost reduction.

                Part of the resistance to this basic approach seems to be German phobia of inflation, based on recollections of (and arguably confusion about) the hyper-inflation in Germany's Weimar era that led to the Nazi takeover.

        •  The Greek govt has resposibility... (7+ / 0-)

          ...but no way to control it's currency.  They have control of only half the equation.  The Eurozone system seems to have a serious problem in this way.

          Imagine New York and New Jersey telling Mississippi and South Carolina "We're not putting in more than we get back any more, so go fuck yerselves"

          Isn't that what's going on here?

          "Ronald Reagan is DEAD! His policies live on but we're doing something about THAT!"

          by leftykook on Fri Jan 04, 2013 at 07:27:08 AM PST

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        •  Lots of places in trouble besides Greece (0+ / 0-)

          And which, unlike Greece, have some freedom to try a stimulus.

    •  Actually, the latest bailout package (6+ / 0-)

      is an attempt to redirect fiscal policy towards growth.

      In stark contrast to the initial tranches, this one, worth 52 billion euros, will be used to stabilize the Greek economy internally. Out of that amount, 40 billion will remain in the country while only about 12 billion will go towards debt service. That 40 billion will be used to recapitalize Greek banks and thaw credit markets and pay the massive invoices the Greek government owes to private Greek companies, as well as general stabilization measures.

      More on that here:

      A true growth strategy would have been doing this at the outset of the crisis rather than at its peak. If even 3 or 5 billion were shaved off of the first bailout to go directly towards small business start-ups and social services, I don't think we'd see the depth of crisis we'd see today. Moreover, in country where almost 1 in 5 work in the tourism sector, using what's essentially stimulus funds to revamp that languishing sector of the economy would have been huge.

      One novel idea bandied about was using some of those funds to subsidize travel to Greece (the cost of the ticket to Greece is why most people don't travel there from the United States). A 100 euro credit or a 500 dollar credit on a ticket by the Greek Tourism Ministry would have generated an influx of tourists -- which is what many of Greece's non-metropolitan areas need. Tourists spend money. It was a interesting way of getting foreign capital injection into the country via the tourism route.

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