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Greece – Another Case of Expansionary Austerity Failure
The public austerity program forced upon the Greek population by the European Commission, the European Central Bank, and the International Monetary Fund (Troika) has depressed the economy instead of leading to an economic expansion, under the mantra of “expansionary austerity” policies. Five years of austerity involved drastic reductions in public expenditure, public sector redundancies and tax increases in the context of the worst global contraction of more than 60 years.
As the Greek Prime Minister, Yanis Varoufakis, explained in a recent article published on the Project Syndicate website, the hard-line austerity plan adopted has proven to be worse than the global contraction of 2008. Greece’s GDP (Gross Domestic Product) collapsed by 25% and unemployment rates shot up to more than 25%, the highest in the Euro area.
According to Carmen Reinhart and Kenneth Rogoff, authors of This Time is Different: Eight Centuries of Financial Folly, “the post-war periods offered some bouts of turbulence: the inflationary outbursts that accompanied the first oil shocks in the mid-1970, the recessions associated with bringing down inflation in the early 1980s, the severe banking crises in the Nordic countries and Japan in the early 1990s, and the bursting dot-com bubble in the early 2000s.
However, as the authors described, “these episodes (described above) pale in comparison with the pre-war counterparts and with the global contraction of 2008, which had been unparalleled (by considerable margin) in the sixty-plus years since the World War II”.
In the particular case of Greece, over the last five years, and within the context of the Second Great Contraction, Troika failed to recognize that the country was not embarking upon a path of economic growth or expansionary austerity but the opposite and, understandably, with little support from the majority of the population. Expansionary austerity has been contractionary in Greece and has led the country to default on repayment. Additionally, the pace of the structural deficit reduction is yet to be synchronized with the magnitude of the global economic crises, which is the worst in more than 60 years, as pointed out by Reinhart and Roggof.
In line with the recessionary effects of the Troika policies, MarketLine publishes a number of industry profiles outlining how the policies are negatively affecting a number of industries in Greece.