Wednesday, 10 October 2012

Merkel visits Greece

The big news of the week was Angela Merkel's visit to Greece. In her own words "For me, it is very important to really get to know a country,". What she had not specified was whether she wanted to know a country before or after the country was brought to its knees by extreme austerity measures.
Greek riots. Source: Wikimedia Commons
The situation in Greece now is this: waiting eagerly for 39 billion from the EU and IMF which the Troika will not release until the situation is assessed and the new austerity measures are agreed upon. The problem is that Greek GDP, which has fallen by 20% over the last 4 years and is expected to drop by another 6.5% this year will have trouble stabilizing given the new austerity measures. A 20% decrease in GDP essentially means that even if the Greek debt remains stable, it will increase by approximately 25%.

This is why the IMF has reduced forecasts for both the EU and the world economy. As austerity measures continue to prevail in the EU periphery, the area will not be stable. Obviously, reforms and austerity measures need to be implemented. However, the rapid and intense nature of these does not allow the affected economies to recover and are, at least for now and 2013, at a recessionary course. We cannot overcome recession with austerity measures. Keynes and Fisher have ruled this out 80 years ago. Unfortunately, the latter had to witness the Great Depression at full length to be able to grasp what was going on. Let us hope we do not have to go full length into this recession to find out what the answer should be.

1 comment:

  1. Thanks for sharing with us and i hope in future you also update us.