SOMETIMES there is turmoil in the markets because a government threatens to do what is best for its citizens. This seemed to be the case in Europe last week, when the German magazine Der Spiegel reported that the Greek government was threatening to stop using the euro. The euro suffered its worst two-day plunge since December 2008.Read the rest here.
Greek and European Union officials denied the report, but a threat by Greece to jettison the euro is long overdue, and it should be prepared to carry it out. As much as the move might cost Greece in the short term, it is very unlikely that such costs would be greater than the many years of recession, stagnation and high unemployment that the European authorities are offering.
The experience of Argentina at the end of 2001 is instructive. For more than three and a half years Argentina had suffered through one of the deepest recessions of the 20th century. Its peso was pegged to the dollar, which is similar to Greece having the euro as its national currency. The Argentines took loans from the International Monetary Fund, and cut spending as poverty and unemployment soared. It was all in vain as the recession deepened.
Then Argentina defaulted on its foreign debt and cut loose from the dollar. Most economists and the business press predicted that years of disaster would ensue. But the economy shrank for just one more quarter after the devaluation and default; it then grew 63 percent over the next six years. More than 11 million people, in a nation of 39 million, were pulled out of poverty.
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8 comments:
So should the US.
Countries using public spending to grow economies through demand side stimulation? Let's hope Milton Friedman's grave is shut tight enough to keep out that news.
The NYT kind of glosses over that one. Argentina recovered because its exports and labor got cheaper, forcing the books to balance. If government tossing around money was all it took, they wouldn't have defaulted to begin with.
Uh yeah I dont know how familiar you are with the situation here, but having lived through it I can tell you your comment has nothing to do with reality. Successive governments took out huge loans (under the advice of IMF advisors) which were used completely supply side. This meant that unemployment became a chronic problem and the pegging of the peso only served to increase capital flight.
It took a complete rejection of the neo-liberal economic model to get the country on the path to economic growth. Unlike countries like Greece, Spain or the US which are shedding manufacturing like mad, Argentina has more and more manufacturing jobs every day. In the 90’s the government privatised (sold-off) most of its vital resources (like YPF, Aerolíneas Argentinas, Social Security), but the last two governments have been dumping money into the public sector by buying them back. No we're not going to be a major exporter like China anytime soon, but at least here when I go out to eat dinner, the table I eat at, the silverware, the wine, the construction materials, everything is domestic made.
This is bad news for the Washington model economists that drove the country into economic crisis (our own humble versions of Bear Stearns, Fannie Mae, etc.), but good news for the other 40 million of us. The results: unemployment and infant mortality are at historical lows, growth is averaging in the 8% range and income distribution is increasing by leaps and bounds. Compare those figures with the US and its supply side model.
You should just have the government buy all industry. Then Argentina will be heaven on earth.
Your comment isn't much of a proof for Keynesianism. Really, all it shows is that removing massive debt from your balance sheet is a good shot in the arm, just as Germany did well once it stopped paying reparations from Versailles.
1. I wasn't arguing for Keynesianism and never would.
2. My point is that Argentina's recovery had a heck of alot more to do with sound pro-growth fiscal policies than it did with telling the IMF to go screw.
3. The Kirchner Administration has already signed agreements with the Paris Club and most of its creditors, so its not like the debt was ever the ogre impeding recovery. It had rather to do with fostering domestic industry in order to create jobs and boost domestic consumption.
And whaddya know? It turns out that regulation, protectionist trade policy and nationalisation of industries led to huge job growth in the PRIVATE sector.
4. Heaven on Earth? Doubt it. Just give Argentina time; I predict within a decade these policies will be ditched and we'll drive ourselves into another depression. Chalk it up to the self-destructive nature of capitalism.
I like the idea of collateralizing Greek debt by privatization.
Visibilium didn't read the article. Back in school we'd get demerits for not doing the reading.
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