Greece’s struggling economy was back in the spotlight this
weekend. According to BBC News,
“The Greek parliament has passed a bill which will see 15,000 state employees
lose their jobs by the end of next year.”
But that’s not all, by 2015, 150,000 public employees are expected to
lose their jobs. How’s that for
austerity? Not surprisingly, the
passage of the law, which will continue to swell Greece’s already high
unemployment rate of 27%, was not well received and the people took to the
streets in protest.
Interestingly, also over
the weekend, Business Insider published a story outlining how support for
austerity in the United States may be diminishing in light of “the very
public demolition of a sacred text of the austerity movement, the 2010 paper by
a pair of Harvard professors arguing that once debt exceeds 90 percent of a
country’s gross domestic product, it crushes economic growth.” As we discussed in class, the validity
of the Reignhart-Rogoff study has been called into question due to a coding error
in their spreadsheet that led to some data being omitted. Their data, according to The Economist,
shows a steep decline in growth, from 3% to -0.1%, at 90% GDP. But a new paper, published by Herndon,
Ash and Pollin of the University of Massachusetts, Amherst stated that with the
inclusion of the omitted data the decline in growth is in fact 2.2% and not the
reported –0.1%. Business Insider asserts that these findings have brought many in Washington to “The realization
that growth is how you close the deficit and that austerity
(because it saps growth) is counterproductive.”
In Greece’s case, it doesn’t matter. The moves toward austerity are not
self-imposed. According to BBC News the recently passed law and other austerity measures are a condition of a
structural adjustment loan that is dispersed by IMF in tranches. If Greece hopes to receive future
tranches of the loan, they have no choice but to continue to move toward
austerity. But it still begs the
question: Is austerity the right move for Greece?
An interesting factor to consider when analyzing Greece's current debt crisis is that it has a history of overspending on entitlement programs and pensions. And although it's in Germany's (the "banker" of Europe) interest that Greece pay their debt back, it is not necessarily beneficial for the rest of the world economy if Greece spends less on imports (which lowers demand for international goods and services) and implements strict austerity policies.
ReplyDeleteAusterity is the only move for Greece right now. When Greece entered into the EU interest rates became so low that people were able to borrow money very inexpensively. Decades later, people (as well as the government) must finally take responsibility for their spending and exercise frugality if they wish to recover from their economic crisis.
ReplyDeleteConsidering the situation that Greece is in now and what it had been when it entered into the EU austerity is the only way at this point. Eliminating austerity measures would have worked for a country that was relatively stable economically (i.e. US). Once Greece is able to held accountable for their malpractices and financial irresponsibility then should this policy be considered.
ReplyDelete