Austerity Programs In Latin America

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NEW YORK – When the euro crisis began a half-decade ago, Keynesian economists predicted that the austerity that was being imposed on Greece and the other crisis countries would fail. It would stifle growth and increase unemployment – and even fail to decrease the debt-to-GDP ratio. Others – in the European Commission, the European Central Bank, and a few universities – talked of expansionary contractions. But even the International Monetary Fund argued that contractions, such as cutbacks in government spending, were just that – contractionary. We hardly needed another test. Austerity had failed repeatedly, from its early use under US President Herbert Hoover, which turned the stock-market crash into the Great Depression, to the IMF “programs” imposed on East Asia and Latin America in recent decades.

And yet when Greece got into trouble, it was tried again. Greece largely succeeded in following the dictate set by the “troika” (the European Commission the ECB, and the IMF): it converted a primary budget deficit into a primary surplus. But the contraction in government spending has been predictably devastating: 25% unemployment, a 22% fall in GDP since 2009, and a 35% increase in the debt-to-GDP ratio. And now, with the anti-austerity Syriza party’s overwhelming election victory, Greek voters have declared that they have had enough. Stiglitz, all economics aside, you seem to forget that the Greek strategy clearly so far was to live off the Eurozone and not for it. If a government meets 9 times (NINE!) in 2.5 years to solve their problems (for comparison, the German government came together 98 times in the same time frame, not being in crisis mode), then it's simply pretty much hopeless!

Austerity Programs In Latin America

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Economics is one thing, the honest will and determination to solve ones problems is an entirely different one. And that is where Greece has the greatest deficits of all!

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If anyone thinks that can be left out of the equation, they simply do not understand the psychology of it all. The rest of Europe is no longer willing to support such an attitude, and that attitude is clearly visible, again, again and again and Europe is now determined to draw a finite red line. IF Greek had done, what they had promised, Europe would be willing to support any reform process - but this country has a rare talent to screw up - really badly, unfortunately. And I am not talking about the average Greek, I am talking about their governance primarily. There are two important factors that you fail to mention, Prof. One is the interest/exposure of American banks in the European banking system, and the other the general interest of capitalist buzzards around the world in forcing the Greek government into 'privatizing' important national assets for pennies on the dollar.

I didn´t used to be that cynical about what really lies behind the policy-making process in the US and EU, but, after what we have seen in the last 25 years it becomes hard to continue asserting that there is any rationality or public interest involved in the process any more at all. Stiglitz writes:“making capitalism work requires giving individuals a fresh startWhat did help was to provide better incentives for good lending, by making creditors more responsible for the consequences of their decisions.” YES on giving opportunities, and a rotund NO to the current incentives. Higher bank equity requirements when lending to the risky than when lending to the safe, only guarantees too much lending at too low rates to the AAArisktocracy, and too little lending at too high rates “risky” small businesses and entrepreneurs. I agree with Prof Stiglitz article. The way we allow bankruptcy protection for a corporation, we need to have exit option for Greece. Currently as Greece is with in Euro there exit option is difficult.

I think Greece should evaluate option for exit followed by devaluation for currency. This itself will be a big punishment for over spending by borrower and people of Greece will ensure they dont splurge in debt like this in future. Also creditor need to take a hit for giving loans. While all sound logical, this need to conclude soon.