February 2012, Week 3


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Tue, 21 Feb 2012 16:36:01 -0500
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Latest Agreement Won't Resolve Greek Crisis, Likely to
Make it Worse, CEPR Co-Director Says

	European Authorities Pushing Greece Deeper Into
	Recession, Toward Default and Exit from Euro

Center for Economic and Policy
February 21, 2012


Washington, D.C.

The agreement between the European authorities and
Greece won't resolve Greece's economic crisis and is
likely to make it worse, said Mark Weisbrot, economist
and Co-Director of the Center for Economic and Policy
Research (CEPR).

"The European authorities seem more intent on punishing
Greece than helping the economy recover," said
Weisbrot.  "For two years now they have been pushing
the Greek economy into recession, and there's still no
light at the end of the tunnel."

Weisbrot noted that the IMF has had to lower its
projections for Greek GDP shrinkage by an enormous 7
percent of GDP in less than two years.  Most of this
downward revision has been in just the last five

A leaked document reported last night by Reuters and
the Financial Times contains a "sustainability
analysis" prepared for the European Finance Ministers.
It portrays a grim scenario with explosive debt and
Greece needing "about _245bn in bail-out aid, far more
than the _170bn under the `baseline' projections
eurozone ministers were using."

"Given the underestimation of Greek losses so far, and
the recessionary impact of budget tightening, mass
layoffs, a 20 percent reduction of the minimum wage,
and other austerity measures - I think the pessimistic
scenario outlined in the leaked document is a very
plausible scenario," said Weisbrot.

Weisbrot also pointed out that the European
authorities' strategy of "internal devaluation" is not
working even on its own terms.  The ostensible purpose
of Greece's prolonged recession is to lower labor costs
in order to lower the country's real exchange rate and
increase Greece's international competitiveness. But
Weisbrot noted that "after four years of recession,
with unemployment rising from 6.6 percent to a record
20 percent, Greece's Real Effective Exchange Rate
(REER), according to the IMF, is higher than it was in

The IMF is projecting that Greece will still have 17
percent unemployment in 2016.

"The bottom line is that you can't shrink your way out
of a recession - you have to grow your way out. What
they are doing to Greece really makes no economic
sense. At this point, it looks like the economy would
do better if Greece were to exit from the euro, as
opposed to enduring indefinite recession and
stagnation, extremely high and persistent unemployment,
and increasing poverty. The European authorities are
certainly pushing Greece toward the exit and default

A more detailed paper on the Greek economy and crisis
will be published by CEPR tomorrow at www.cepr.net.


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