Europe must back away from Greek austerity cliff: Joseph Stiglitz

by Joseph Stiglitz – July 7, 2015

USA Today

Greek voters have overwhelmingly rejected the conditions Europe had imposed on them. Rightly so.

As I wrote before the referendum, “I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences.” Those conditions had led to a 25% decline in gross domestic product, a 28% unemployment rate and a youth unemployment rate almost twice that.

I don’t believe Europe’s leaders were seeking to punish Greece. They were just using bad models — evidenced by the enormous gap between what they thought would happen and what did happen. Europe and the International Monetary Fund predicted a fairly quick turnaround. The reality was deepening recession.

And it wasn’t because Greece didn’t do what it was supposed to; it was because it did. On the all-important macroeconomic front, Greece had the biggest and fastest fiscal consolidation among the advanced European economies in the aftermath of the global financial crisis, ruthlessly cutting back expenditures and raising new revenues.

The Greeks did not doall of the structural reforms that were asked of them. Some it should have done, such as doing a better job of collecting taxes from the rich. Others might make sense when the economy is on the road to recovery — but not now, in the middle of a great depression.

If Greece had done all of them, the situation today would be little if any different in terms of GDP. In fact, more people would be unemployed, and there would have been far more suffering. It is not these “structural impediments” that are holding Greece back. After all, without any of these reforms, Greece grew at a faster rate than theEuropean Union beginning in the mid-1990s until the global crisis (4.0% vs. 2.6%).

The ball is now in the court of European leaders. The question is, will they stick with a policy that has proved a disaster? Or will they combine a desire to preserve the euro with good economic policies and a respect of democracy? Can they reform the reform package sufficiently?

This is the moment to stand up against unthinking austerity. Four years ago, as the first signs of the failure of this policy emerged, Europe’s leaders recognized that what was needed was a growth strategy. They promised Greece that. They didn’t deliver. There was just more of the same.

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