Four years ago the Greek government negotiated its agreement with the IMF for a harsh austerity programme ostensibly designed to resolve its budget problems. Many economists knew immediately that Greece was beginning a long journey into darkness that would last many years. This was not because its government had lived beyond its means or lied about its fiscal deficit: these things could have been corrected without going through six or more years of recession. It was because of the "solution" itself. Four years later, Greece is down by about a quarter of its pre-recession national income - one of the worst outcomes of a financial crisis in the past century. Unemployment has reached 27% - and more than 58% for those under 25. And real public healthcare spending has been cut by over 40%, at a time when people need the health system more than ever. The IMF is the subordinate partner in the troika - formed with the European Central Bank and the European commission - that has been calling the shots in the Greek economy, and projected economic recoveries for 2011, 2012 and 2013 that did not materialise. Now the IMF is projecting economic growth for 2014. This time it is probably, finally, going to be right. But it is vitally important that we understand why. Last month the Greek parliament approved a stimulus programme involving highway construction. Total spending on this project will be euros 7.5bn over the next year and a half - about 2.7% of GDP during this period. For comparison, the federal stimulus that helped the US out of its 2008-09 great recession (after subtracting the state governments' budget tightening) was less than 1% of GDP. This stimulus will likely make the difference between growth and another year of recession. Most of the financing comes from EU grants, so it does not add to Greece's debt. In other words, the Greek economy is going to grow this year because of a significant policy reversal. The austerity, or fiscal tightening, is basically coming to an end. Why is this so important? Because the people who designed or supported the policy of the past four years will, when the Greek economy begins to recover, claim that "the austerity worked". But even the IMF's own analysis of the Greek economy refutes this claim. The austerity can only "work" (if one accepts the obscenely high human cost of it) if the massive unemployment drives down wages enough so that the economy becomes more competitive and can export its way out of recession. The IMF projects a 20% decline in wages and salaries for 2010-2014; but this has not been enough to make Greek exports significantly more competitive. Of course, Greece is still far from out of the woods. With a debt-to-GDP ratio of 176% (it was about 115% when Greece began austerity), there could be more crises and another debt restructuring ahead. And even if the return to growth this year convinces investors, it will take years for unemployment to reach humane levels. Looking forward, the eurozone is still stuck near record levels of unemployment (12.1%), and how soon it returns to normal will depend on how quickly the European authorities are willing to reverse their policies. Mark Weisbrot is co-director of the Centre for Economic and Policy Research in Washington DC
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