It might not look like it in tony neighborhoods and at fancy restaurants where Greek politicians and the rich elite dine and live, but for many, Greece is in a Depression – with a capital D – not a recession.
Five years of a shrinking economy, with nearly two million people out of work, some 1.2 million jobless whose benefits have expired, bludgeoned by pay cuts, tax hikes and slashed pensions, with 68,000 businesses closed, 4,000 restaurants failing in a year: those are the more common sights to many Greeks.
The image was not lost to some in the media, as a recent Bloomberg article pointed out in a piece that likened Greece’s state to that of the Depression of the 1930’s in the United States and Germany. showing the challenge that Prime Minister Antonis Samaras in trying to right the economy with more austerity that is being fiercely opposed with protests, strikes and riots.
The article noted that as the number of destitute rises, so does desperation, and crime has soared along with support for the neo-Nazi Golden Dawn party, which has been accused of bashing immigrants, intimidating gays and going after people it considers blasphemers.
The economy shrank 18.4 percent in the past four years and the International Monetary Fund, which, along with the European Union and European Central Bank (EU-IMF-ECB makes up the country’s international lenders putting up $325 billion in bailout loans, sees a further 4 percent drop next year.
Bloomberg noted that’s the biggest cumulative loss of output of a developed-country economy in at least three decades, coming within spitting distance of the 27 percent drop in the U.S. economy between 1929 and 1933, according to the Bureau of Economic Analysis in Washington.
“Austerity has been destroying tax revenue and therefore thwarting the intended effect,” Charles Dumas, Chairman of Lombard Street Research, a London-based consulting firm, told the news agency. “There’s no avoiding austerity, though, because these people have no borrowing power. The deficits are there.”
“The experience of the 1930s says you need to stimulate the economy,” said Vassilis Monastiriotis, a senior lecturer in political economy at the London School of Economics. “The rise of the far-right in Greece isn’t something ephemeral that will go away when the crisis ends. And it’s very dangerous if the rise of the right causes relations with neighbors like Turkey, Macedonia, say, to deteriorate.”
The German economy contracted by about 34 percent in the years after 1929 and resulted in Adolf Hitler becoming Chancellor in 1933, according to data from the Federal Statistical Office in Wiesbaden. Even after growth resumed in Germany beginning in 1934, it took until 1937 for output to exceed the level enjoyed in 1929, the data show.
The IMF’s prediction for a 4 percent contraction next year suggests Greece may surpass Latvia as the nation suffering the deepest recession in the European Union. The Baltic country’s output started to shrink in 2008, erasing 20.7 percent of the economy in three years. The country, which has a 7.5 billion euros, $9.7 billion, from the IMF and the EU, has now resumed growth.
“Getting the banks lending again is the key thing,” said Gabriel Sterne, an economist at brokerage Exotix Ltd. in London. “Right now, the Greeks don’t have a banking system like anyone else understands it. Greek banks hardly do any new lending.”
The IMF also has reviewed its assumptions, saying that the knock-on effects of cuts to government spending, called fiscal multipliers, may be more than three times greater than previously estimated. That means that a given spending reduction risks erasing a larger amount of output, causing revenue to fall and deficits to increase.
The IMF forecasts that government expenditure this year will fall to levels last seen in 2006 even as Samaras readies another $17.45 billion spending cut and tax hike package and is ready to lower the boom again on the country’s most vulnerable – workers, pensioners and the poor – while letting the rich and tax cheats largely escape sacrifice again. For them, there’s no Recession or Depression, only prosperity.
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