“I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?”
“… the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.”
“…Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?”
“At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.”
Breaking Greece, Paul Krugman (International New York Times blog)
Paul Krugman and friend (top) and Greece spending Vs Spanish spend
Ahead of a possible Greek deal/exit.
Nobel winning economist Paul Krugman writes:
How did we get to this point?
Nothing fills me with quite as much despair as the persistence of the story line that it’s all about continuing Greek fecklessness, that the Greeks haven’t done anything.
In fact, Greece has imposed almost inconceivable pain on itself. Above is a comparison between Greece and Spain, the current favorite son of the austerity camp (although the Spaniards themselves aren’t impressed)
The problem has been that severe spending cuts in an economy with no independent monetary policy and no ability to devalue lead to severe economic contraction, which in turn means that a large part of what’s gained fiscally at the front end gets lost via reduced revenue.
This isn’t the fault of the Greeks, it’s basically a design flaw in the euro itself.
Thinking About the All Too Thinkable (Paul Krugman, New York Times)
Paul ‘The Gloomeister’ Krugman.
The austerity-bashing, cat-stroking economist visits University College Dublin on Monday (the 13th!). He’s still in mourning.
No buzz is safe.
Previously: Paul Krugman’s Buzzkills on Broadsheet
Thanks Thomas Williams
The bad-vibed Nobel winner writes:
Moreover, there seems to be little if any gain in return for the pain. Consider the case of Ireland, which has been a good soldier in this crisis, imposing ever-harsher austerity in an attempt to win back the favor of the bond markets. According to the prevailing orthodoxy, this should work. In fact, the will to believe is so strong that members of Europe’s policy elite keep proclaiming that Irish austerity has indeed worked, that the Irish economy has begun to recover.
But it hasn’t. And although you’d never know it from much of the press coverage, Irish borrowing costs remain much higher than those of Spain or Italy, let alone Germany. So what are the alternatives?
One answer — an answer that makes more sense than almost anyone in Europe is willing to admit — would be to break up the euro, Europe’s common currency. Europe wouldn’t be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation.
As a counterpoint to Ireland’s sad story, consider the case of Iceland, which was ground zero for the financial crisis but was able to respond by devaluing its currency, the krona (and also had the courage to let its banks fail and default on their debts). Sure enough, Iceland is experiencing the recovery Ireland was supposed to have, but hasn’t.
Those Revolting Europeans (Paul Krugman, New York Times)
The Nobel prize-winning economist writes:
A reader directs me to this interview with John Peet, the Europe editor of The Economist, who declares: “And of the countries that were in trouble, I would say Ireland looks as if it’s the best at the moment because Ireland has implemented very heavy austerity programs, but is now beginning to grow again.”
From Ireland’s Central Statistical Office:
See the return to growth, there at the end? Me neither. To be fair, Peet isn’t alone. The legend of Irish recovery has somehow set in, and nobody on the pro-austerity side seems to feel any need to look at the data, even for a minute, to check whether the legend is true. Amazing.
Austerity Fantasies (Paul Krugman, New York Times)
Paul Krugman (with ‘Keynes’ the cat).
Dire predictions? He’s got a Nobel for them.
And every slight uptick in an austerity economy has been hailed as proof that the policy works. Irish austerity has been proclaimed a success story not once but twice, first in the summer of 2010, then again last fall; each time the supposed good news quickly evaporated.
You may ask what alternative countries like Greece and Ireland had, and the answer is that they had and have no good alternatives short of leaving the euro, an extreme step that, realistically, their leaders cannot take until all other options have failed — a state of affairs that, if you ask me, Greece is rapidly approaching.
What Greece Means (Paul Krugman, New York Times)