Olivier Blanchard on Greek austerity

It was inevitable, not the result of some bad policy choice by outsiders, foisted on Greece:

Even before the 2010 program, debt in Greece was 300 billion euros, or 130% of GDP. The deficit was 36 billion euros, or 15½ % of GDP. Debt was increasing at 12% a year, and this was clearly unsustainable.

Had Greece been left on its own, it would have been simply unable to borrow. Given gross financing needs of 20–25 % of GDP, it would have had to cut its budget deficit by that amount. Even if it had fully defaulted on its debt, given a primary deficit of over 10% of GDP, it would have had to cut its budget deficit by 10% of GDP from one day to the next. These would have led to much larger adjustments and a much higher social cost than under the programs, which allowed Greece to take over 5 years to achieve a primary balance.

Even if existing debt had been entirely eliminated, the primary deficit, which was very large at the start of the program, would have had to be reduced. Fiscal austerity was not a choice, but a necessity. There simply wasn’t an alternative to cutting spending and raising taxes. The deficit reduction was large because the initial deficit was large. “Less fiscal austerity,” i.e., slower fiscal adjustment, would have required even more financing cum debt restructuring, and there was a political limit to what official creditors could ask their own citizens to contribute.

The full link is here.   Here is Hugo Dixon on the new deal on the table, the one where Syriza finally and wisely realizes it has no alternative to austerity.  I’ll stick with my Twitter prediction that yes there will be another “deal” of sorts, but it will break down rather rapidly, leading to true Grexit.


Austerity would slow the growth of debt, but would also slow the growth of NGDP (sans independent monetary policy), which is not ideal from the point of view of the debt to NGDP ratio. Looser eurozone monetary policy would have boosted NGDP in Greece, but might have led to too much NGDP in Germany.

Supply-side reforms, together with a temporary increase in the deficit, would have increased NGDP into Greece. Short of that, exiting the euro seems like the only desirable option from Greece's vantage point. It seems that if the Europeans had offered to support Greece's deficit, even allow it to grow slightly for a short time, in exchange for, e.g., labor market deregulation, the deal would've been more palatable to Greece than the insistence on austerity. It would've also improved the prospects for Greece to actually repay its loans eventually. But Blanchard is probably right that political limits on loan generosity from Europe made such a deal effectively impossible.

I don't see how leaving the euro would help Greece avoid the need for austerity. Greece imports a lot of things, such as oil, and who would take a new drachma in payment for that? Greek pensioners would have seen their real incomes fall sharply anyway.

As for deficit support in exchange for reforms like labour deregulation, who can believe a Greek government would do any deregulation if free money was flowing? Yes the deal would have been more palatable to the Greeks, because it would have meant exchanging empty promises for hard cash.

I get it, but Greece has successfully implemented a number specific reforms in exchange for support from the Troika in recent years. These reforms actually materialized (e.g. major tax increases, spending cuts, changes to retirement age, etc.). Given that, it's hard to argue that it is impossible to achieve policy reforms, such as deregulation, in exchange for cash and deficit support. I'd venture that Greeks would actually be happier doing things like labor deregulation that even more tax increases and spending cuts. The crux: after the German and French banks were bailed out, everyone wanted their money back, and they wanted it yesterday. Reasonable people can disagree about whether deficit relief could really help grow the economy out of some of this, but at this point the demands are driven by a principle of fiscal rectitude (or something) and northern taxpayer anger, rather than pragmatism.

You would THINK they would prefer deregulation to harsh austerity but experience tells us otherwise

"but at this point the demands are driven by a principle of fiscal rectitude (or something) and northern taxpayer anger, rather than pragmatism."

The Greeks are asking for more money. The Northern Europeans are refusing to throw any more money down that rat hole. The rest is posturing.

I think your comment makes my point.

Funny. Those of us who favour a principle of fiscal rectitude do so on the pragmatic grounds that the alternative eventually leaves you exposed to the demands of creditor nations.

And I'm still rather cynical that such reforms could be easily achieved if deficit support was attached: all the reforms you list as being achieved were ones that have immediate impacts on Greece's fiscal state.

Which is why it is even more impressive that those reforms happened in short order.

But wouldn't the drachma help exports?

All those things implemented vigorously over the last decades are what lead to this crisis. Low interest rates, deficit spending, infrastructure programs.

Greece has a government cost structure that is too high, the low hanging fruit has been picked, the next step is laying off large numbers of government employees that are wont to burn things. The step after is to stop paying pensions of the able bodied.

But that money goes somewhere, and distorts the economy. It maintains vested interests who either engineer a coup or burn down the banks when the gravy train dries up. Businesses would much rather play the easy game of milking the cow versus having to do the continuous hard work of being competitive. And amazingly, if you borrow money to pay bureaucrats to slow down the economy, they can be very effective.

Yep. One of Greece's biggest problems is that it Germany's monetary policy is a bad fit.

Half of Greece's debt was erased in 2010, I would guess the Eurocrats will effectively give them another third this time, probably through longer maturities.

I think an under-appreciated effect of Greece's travails is the vicious cycle in monetary policy -- the ECB cannot be seen as printing money for Greece at the expense of everyone else, hence the laser focus on inflation even to the point of creating a needless recession.

And just wait till Italy and Spain want their turn at the trough...

The people in Greece don't want a Grexit. So there will not be a Grexit. That is why their parliament voted 250 out of 300 to approve the latest proposal.

Tough. They're going to get one whether they like it or not.

We've been hearing the same predictions for years. The EU is constantly on the verge of dissolution. It was a bad idea from the start and can't last!!! Italy and Spain were supposed to have left a long time ago too. None of this happened.

There's a first time for nothing!

Nah, the Eurocrats won't let Greece out.

Austerity; pay me now or pay me later, no matter what bullshit Krugman tells you.

Good luck to the Greeks.

What is the purpose of the bailout? Ostensibly the creditors want to be paid back, but even according to their own IMF reports the demands they are imposing will make it harder to do so, so that can't be it. So what is the charade really meant to accomplish?

There is no bailout, there is more lending and a change in the terms of the repayments. The point for most Europeans is to avoid someone setting a precedent of leaving the Euro. The point from some other Europeans is to make Greece reform. The point for most Greeks is to be fully part of Europe.

I also think the Greek program will simply further depress Greek GDP, and Greece will have to default when this new 60 billion is used up. At that point some major change has to happen to Greece's banking system.

" some major change has to happen to Greece’s banking system."

The banking system isn't the problem. The problem is a government that spends more than it takes in. "Austerity" would mean making redundant the bloated Greek bureaucracy and cancelling the pension payments of the retired public sector. That won't happen because the current generation has to make good the promises of their elders. The Greeks are the tip of the iceberg.

Screw the Greek elders and, most of all, screw the US Baby Boomers. This generation gave me life and will, ironically, do its best to ruin my life.

"The problem is a government": no, the real problem is the populace. Their "culture" is inconsistent with their ambitions.

+1, Greece doesn't produce enough economic surplus to retire people at age 50 at a middle class level.

I've yet to find a governance problem that isn't caused in some way or other by culture. Even genetics are manifested as culture.

JWatts, except they aren't retiring at 50 any more. at this point it is a canard.

The average retirement age for Greece in 2009 was 57. Yes, it's jumped in the last 5 years to a more Western norm of 65-67. Are you claiming that Greece is committed to making this a permanent change?

The banking system isn't the problem, but it has no collateral with a bankrupted government and will not continue to function. This has been made clear over the last two weeks.

So what is the charade really meant to accomplish?

Once you understand that the debt cannot be paid, you are in a position to answer your own question. The only goal of the Troika is to have a future Troika write off the debt (and thus initiate the on-budget consequences for the EU itself). The only goal of the present Greek government is to have a future Greek government cut the public sector to a sustainable size.

Blanchard's piece is important to read and understand. However, you can see in some of the comments above and below that some people are determined to misunderstand it all.

I'm bullish the Euro.

Worst crisis since the Great Depression and only one country even comes close to exiting.

@meets - I was bullish on Citibank in 2007, about the time it reached its all time high...then within a year it was rubble. As the ancient Greek tragedians said, "pride precedes the fall".

I think you mean Proverbs 18 "Pride goes before destruction, And a haughty spirit before stumbling."

I am sure the Greeks are familiar with this from their religious upbringing.

@Ray - You bought the highs at a time of euphoria.

The Euro isn't exact in a bubble.

meets, "The Euro isn’t exact in a bubble" does not indicate where a bottom may be. Victor Niederhoffer, in his book, said something along the lines of "Thai banks were down 90%, and I did not believe the Thai government would let them go under. I went all in. They went down another 90%." Catching a falling knife is not riskless.

I'm not arguing otherwise

The ECB hasn't responded with moneyprinting, or even monetary offset.

Of course, neither did the Fed in TGD, and look where that got us...

To what extent is the Greek crisis a consequence of hosting the Olympics?

@MT - lol, the KKE, the Greek Communist Party, would agree with you since they were against the 2004 Olympics (and it was the one and only point with which I agreed with them).


Is he the same Blanchard?

And they are the serious-people...

"some bad policy choice by outsiders"

There are lots of bad policy choices by outsiders, including ECB and Eurozone politicians decisions on interest rates and regulations, that allowed Greece to borrow this much in the first place. And lots of similar bad choices about how the necessary austerity (yes, necessary, but not necessarily exactly as it was done) could be managed.

The bitchy behavior of Greece('s leaders) will prevail. Even if we take all the maneuvering and confrontation as "applied game theory", the Greek willingness to soak this piece of debate in the dirtiest mucus of disruptive tone and nationalistic, racial antagonism ("Germany didn't paid it's debt", "Germany won't spare Greek pain - it has an intereset in breaking us" - not quotes of their tabloids, but their elected leaders) proves how illogical, reckless and immune to feedback they are.

At least their leadership is and their bullshit will trickle trickle down to any civilian who'd might have thought otherwise about the reasons of his personal financial problems. But through this propaganda-bullshit generations of Greeks will blame Germany for all their struggles. Thanks to that bullshit, Greeks of the future will look at the time prior to this crises as a time, where Greece was well-oiled and everything was going nice, the Greek society was about as prosperous, industrious as one society could get and it was led by the wisest men and women for about any legislative period. But then the evil Germans came.

@Alex - Calm down, you're foaming and your prose shows it. "Germany didn’t paid it’s debt" -- that's not a proper sentence, on many levels.

The alternate history is what? Given the multiplier, Greece suspends payments on it's debt, quits the bond market cold turkey and experiences a 16% contraction in real output in FY 2010-11. Conjoin this to a departure from the Euro and a devaluation derived from a new currency on an independent float and they begin their recovery in 2011 and just maybe arrive at a point around about now when they can begin to service their debt again. As is, they've suffered a 25% implosion in real output over five years and major issues are still unresolved.

>a devaluation derived from a new currency on an independent float and they begin their recovery in 2011

Really. Without foreign currency reserves how do they devalue? Hell, how do they import oil if they leave the Euro? Greece is no Argentina, it doesn't have tons of natural resources AND a luckily timed commodity boom.

Really. Without foreign currency reserves how do they devalue? Hell, how do they import oil if they leave the Euro? Greece is no Argentina, it doesn’t have tons of natural resources AND a luckily timed commodity boom.

You fancy their entire export sector disappears?

Agriculture and tourism aren't exactly solid export sectors.

@Anon - as Art Deco says, Greece has a nice export sector, namely tourism and certain agricultural products found in Greece. Try growing olive and fruit trees in the tropics. It won't happen since these trees need a cold spell to grow.

The problem is tourism <20% of GDP. Olive oil exports aren't much in the scheme of things. Add in some cotton and earnings from shipping. It's not nearly enough to cover their imports.

Or at least that's my understanding.

A huge fraction of their "labor force" is retired or government bureaucrats, etc. etc. and producing nothing tradable either internationally or even domestically.

They were running a large current account deficit in 2008, something they would have had to stop doing (and done through the agency of a currency devaluation). The deficit was running to $40 bn per year at that time. About 62% of their exports by value at that time consisted of services, and of this fraction shipping and tourism ('Transport services' and 'travel services') made up about 90%. Their merchandise exports were split about 50-50 between manufactures on the one hand and food, fuel, and raw materials on the other.

I.e. imports were exceeding exports by 50% and financed by capital inflows amounting to 12% of the domestic gdp.

The main culprit behind the Greek debt has been the incredibly chaotic and bloated pension system.

"By 1990 the Greek government grew alarmed at pension expenditure, which stood at 15 per cent of GDP and 50 per cent above the OECD average, and decided to pursue a two-stage pension reform strategy. (...) In 2012, the old-age pension expenditure still exceeded 14 per cent of GDP."


That is largely because they have so many old people (65+) as share of the population and due to the fact that Greece's GDP has declined significantly, not because the payments are so high. See more here: http://blogs.wsj.com/brussels/2015/02/27/greeces-pension-system-isnt-that-generous-after-all/

Does it make any difference if a) low individual payments * 20% of people in retirement or b) high individual payments * small % of total pop? Anyway, you get around 15% of GDP on retirement payments.

Also, the population pyramid did not change from one day to the next. All the countries with non-favorable demographics changed to a system where Individual Retirement Accounts provide most of the money.

I think it makes a difference. In scenario (b), decreasing the amounts of the small number of pensions quite a bit makes sense. In the current scenario, more like (a), pulling even more money from already modest pensions for retirees would seriously impoverish a large swathe of the population--which means other methods to balance the books are probably more appropriate. In any case, Greece has already reduced pension payments by ~40% I think since those figures in the linked article. There are no easy answers, but the pensions have been hit pretty good already. The one thing I think they could try to do is slightly decrease payments for those who are already retired and young (the <60 crowd) in order to incentivize them to work. But I don't think even that would help a lot, as most of them will not be able to find jobs. Starting 401k-like retirement accounts for current pensioners is not an option, and looking backwards is not going to help.

I wonder how much of their productive workforce has emigrated to the rest if Europe or beyond.

Not looking good: http://www.economist.com/blogs/freeexchange/2015/07/personal-grexits

That is largely because they have so many old people (65+) as share of the population

That is an issue they saw coming a generation ago and should have planned for. There is no reason why German workers should pay Greek pensions.

Oh, they don't have to do anything at all. Let's not pretend the Germans and other northerners have done a thing for the Greeks out of the goodness of their hearts. They will continue to do what is in their best interest.

There is no reason why German workers should pay Greek pensions.

Greek voters decided that German workers should. Do you have a problem with democracy?


Germany is aging rapidly too. The largest cohorts by far are the 45 to 55 year olds. In 15 years, all of those people will be retired and collecting pensions. There are TWICE as many of these people as there are children age 9 and under.


Blanchard pretends he knew what would happen back then. But his institution (IMF) gave money to Greece that can not be paid back. If you knew, then why you wasted your money on their bailout?

C'mon, you know that Olivier Blanchard doesn't personally control the IMF. As I remember his writing at the time, he knew this would happen back then.

It's too late. Too many eurogroup governments have figured out that Greece's political class (ND, PASOK and SYRIZA alike) have no real interest in reform. The deal will be rejected and tomorrow we get on with expelling Greece from the eurozone.

I see the Independent Greeks only voted yes because they thought Greece would face a civil war if the proposal was rejected---which wouldn't be a consideration if the government weren't sure they could easily put down any rebellion.

Golden Dawn, who would most likely quickly be victors of any "civil war" due to their deep infiltration of the army and police force, stuck to their guns and voted no. They have nothing to lose from Grexit, and a nation to gain.

Varoufakis probably did the sensible thing sailing out to his island villa. Things may get truly ugly in Athens very fast. I don't blame him for wanting to be far away when it does.

New poll is out, 80% of Greeks are opposed to deal.

Yes. But they'll probably acquiesce to it.

The real question is whether they'll get any deal at all.

All that might be true, but that somewhat misses the point of what Greeks are actually asking the EU and IMF to do. They're not just asking that they be left alone to deficit spend just like before. Even they know that that would be an impossibility given their debt load. What they are asking for instead is for the EU and IMF to wipe away enough of those debts so that they *can* go on deficit spending like they did in the past. In other words, they are demanding that the EU and IMF provide to them the same rope that they used to hang themselves with the last time.

It's only slightly an exaggeration to say that it's been as difficult for the EU and IMF to wring what economic reforms out of the Greek government they've been able to get as it would have been to wring blood from a stone. Too many Greeks have fallen for the all too typical delusion that what's happened to them is not of their own making, that there is some foreign plot trying to do them down.

This is why I never understood the position of anti-austerians when it came to Greece. What was the alternative? Most of the world would love to live a first world lifestyle they are constrained by their economies from doing so though. Why should Greece be any different?

There are curious issues in Greece. They managed to get one of the lowest student/teacher ratio in the OECD. a) too powerful teacher's union/clientelism, b) population pyramid inversion, the government did nothing to adjust teachers number to new student population and this is the result a few years later.

When you're not rich, you can't spend like the rich.


I am not yet convinced that a deal will be struck, though Cowen is surely correct that it wouldn't last long in any case. At some point in the next year or two, the governments of the EU are going to have to explicitly appropriate funds via the individual parliaments to bail out the ESM/EFSF and the ECB, and we are talking about tens of billions of Euros for the larger countries, including Italy and Spain. That is when it gets really interesting. I still predict the first country to explicitly exit the Euro will be Germany, not Greece.

It all comes down to whether Greece actually has first-world potential as a nation.
The wise and sophisticated know that it is more than just productivity and a system of checks and balances - there has to be an attitude toward financial prosperity, personal fiscal duty, and the notion that the state requires a commitment of its people to contribute dutifully, which goes far beyond patriotism and cultural dignity. Time to grow up. Perhaps the referendum was an opportunity to vent and make their feelings known. Good. They've had their formally-worded refer-tantrum which has gotten world-wide coverage, created spots of stock market swooning, and put a bit an especially bright limelight on their feelings. It may not have gotten much leverage, but often the 'closure' before the agreement will create a binding arrangement that goes far beyond signatures, legislation, and fiscal re-form.

Look. Any young, educated Greek who has first world potential, as it were, should be permitted, nay, emcouraged to leave their homeland for a country where they are more likely to be allowed to meet that potential. If they want to send money home to parents whose pensions will soon be defaulted on or hyperinflated away, by all means let them do that.

The rest of their countrymen are about to get the country they deserve, namely the Middle Eastern failed state Greece actually is, not the European nation German romantics dreamed it was. A place you move to the West to get away from, not a place you visit, unless you have elderly relatives there or you're an arms manufacturer whose accounts include the local strongman.

I can live with that. If I want to see Greek antiquities, I have plenty of options in much better classes of countries. So can German taxpayers. And so can all here on MR.

@Jer- you sounded like a learned gentleman until your last word "re-form". You mean 'reform'? Jer with a hyphen- k? LOL.

Grammarian is a weak warrior.


Try engaging on the content.

I don't understand how this new deal is being lauded by the press. It is a strictly worse deal for the EU than the previous deal the EU put forward earlier. If the EU accepts this deal it means that bad behaviors results in rewards.

On that basis alone it needs to be rejected.

Further, given the tone in Greece over the last few weeks there will be hated by the Greek populace of the new deal, this should factor into the calculation of the probability of the stated reforms. Given that they aid proceeds the actual actions required by the Greek government trust is a fundamental component of the deal.

Finally, once the deal is accepted the ECB will need to greatly expand ELA to Greece. This money will be extracted from the EU very quickly by the Greece populace, and will not be returned if there is a subsequent grexit. This by itself should be sufficient to reject the deal.

In summary I see no upside for the EU to accept the deal, only large risks and liabilities.

I still have no idea what sorts of reforms Greece has agreed to implement. Do they include labor market deregulation? Privatizing state owned enterprises?

It's great they've agreed to implement reforms, but which ones? If it's limited to things like enforcement of tax collections, I don't see that really helping Greece's GDP.

Here is what their parliament just voted for. It is in addition to the substantial spending and pension cuts and tax increases they have already been implementing.

tax rise on shipping companies
unifying VAT rates at standard 23%, including restaurants and catering
phasing out solidarity grant for pensioners by 2019
€300m ($332m; £216m) defence spending cuts by 2016
privatisation of ports and sell-off of remaining shares in telecoms giant OTE
scrapping 30% tax break for wealthiest islands

Gosh, I am not quite ready to resume being "Pollyanna Rosser," but it does look my original prediction about this is coming true: Muddle Through, although with a huge amount of noise and damage to the Greek economy along the way rather than the usual backroom dealing. Varoufakis said that was impossible because when push comes to shove, Tyler's original analysis was correct, Wolfgang Schauble basically wanted (and probably still wants) Grexit in order to impose discipline on France and everybody else.

I have not seen enough details of the new proposal, now approved by the Greek parliament, if not popular with the Greek people, or the last Troika offer to figure out just how far apart they are. That they are not identical is seen by Germany still being silent while Slovakia's fin min runs interference to declare his opposition, while France has now come out in favor of the Greek proposal, however austere it is.. But, I suspect it will get accepted, and Grexit will have been put off for some time, if not completely eliminated from the ultimate landscape.

As for Hugh Dixon, not onlhy is he not heroic, I question if he is even serious. The DeLong-Krugman-Stiglitz analysis of the situation looks on the money. If one takes the estimated 1.5 multiplier holding in the euriozone according to Blanchard, what happened in Greece after 2010 was exactly what one should have expected. The extreme austerity imposed (and Dixon shows his lack seriousness, much less heroism, indeed, his stupidity by not recognizing any of this) tanked the Greek economy so badly that even though it massively cut spending and raised taxes (where are you on all that, shit-for-brains Dixon?), the debt/GDP ratio rose rather than fell. It is absolutely clear that some serious restructuring was needed, but apparently will not be happening. Funny that Dixon is now all on top of how the last two weeks have damaged the ability of the Greeks to fulfull deals. But, of course, it is their own damned fault, those irresponsible commies, calling a referendum while th ECB was failing to back up their banks! Don't they know that they must kowtow and kowtow to the bitter old man in Germany in his wheelchair?

Anyway, looks like I am ulitmately right: muddle through is the bottom line for now.

The bitter old man in the wheelchair (put in the chair by a deranged anti-capitalist) has a better chance than even of being chancellor of Germany by this time next year.

I'd rate his chances higher than I would those of Greece's remaining in the EU by then.

The Greek political elites have spent the last five years demonstrating that the Hellenic Republic isn't amy more reformable in its current form than the GDR---and for all sorts of reasons, if he had to do it over I doubt Schäuble would still consider the benefits of re-unification worth the cost.

Rosser still spouting bullshit at every opportunity.

If the multiplier is about 1.6, they have a drop in production of 16% or 19% in 2010-11 and they stop borrowing (and stop servicing, for the time being). Instead, they kept running public sector deficits and deficits on their external accounts and, look ma, a 25% decline in production levels. I'm just not seeing how not cutting them off at the bar accomplished anything here.

Where are you getting this 1.5 from? How could you possibly explain 2008/2009/2010 with 1.5? 16% deficit and no growth!

The Greek government is now spending 65% of GDP. Surely there is a limit here... I don't see how anyone can believe the marginal multiplier is > 0, let alone > 1.

I think it's a median of studies in academic literature on the typical dimensions of the multiplier.

The problem is that GDP is shrinking faster than government spending.

This has led some people to conclude solvency is impossible, but it's only because you can't do monetary offset for just one country in a currency union.

That is the fatal flaw in the euro.

I see the market monetarism trolls are sniffing the anus of the internet again.

The estimate of a 1.5 multiplier comes from Blanchard and the IMF. Most of you simply are not willing to grapple with how severe the austerity has been on the Greek economy.

I should not have referred to Dixon the way I did. It looks like the hardliners in fact do not want a muddle through and simply want a Grexit. So my "muddle through" outcome looks too pollyannaish.

Barkley Rosser is the intellectual equivalent of a Cleveland Brown Trout.

So, the definition of austerity is "still being allowed to spend other people's money?"

Well it is spending much less money than before and mainly using other people's money to service debt. Maybe primary surplus will come back (whether it is already gone is debatable but likely). So this is a kind of austerity. And one thing about austerity is that the people doing it don't like it and are often harmed by it in the short term. It meets that threshold, at least.

I keep telling you, it's not austerity, it's solvency.

Both very good commentaries, thanks for the links. My take is very similar to Hugo's. http://www.globalizedblog.com/2015/07/tsipras-caves-again.html

I guess I'm more jaded, because I don't think we've just seen Syriza "finally and wisely realize[] it has no alternative to austerity." I think Tsipras realized that back in February or even earlier. He dragged out the negotiations for the sake of showing Greeks every last second of time was being used. And then he called the referendum as a completely cynical ploy, to give his supporters the emotional high of rallying to his side and defeating the opposition, planning the whole time to turn around and accept something hardly different from what he asked Greek voters to reject.

I don't think I agree. He made the hole a lot deeper in the interim. This is just going to make his job so much more difficult. He could have done the whole anti-foreigner referendum thing much earlier, before he had to impose capital controls, and gotten the same rally effect without destroying quite so much of what was left of the economy. Thus I am strongly inclined to think he was in a purely day-to-day reactive mode, not pursuing some grand design.

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Greece's debt is expanding, not contracting. Austerity would have been even worse if they had been out on their own, with no bailout infusions. It would have been the bottom line...you ain't got no cash austerity. Like they are facing now.

And "austerity" seems to cover a lot of ground. Does it mean enforcing tax collection?

The ECB missing inflation targets hurt too.

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