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More Pain, No Gain for Greece: Is the Euro Worth the Costs of Pro-Cyclical Fiscal Policy and Internal Devaluation?

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  • Mark Weisbrot
  • Juan Antonio Montecino

Abstract

This week the Greek government reached agreement with the European authorities and the IMF for 130 billion euros in lending, as part of a new adjustment package to replace the current IMF program that began in May of 2010. Although the agreement should allow the government to avoid default in March, there are grave doubts as to whether the agreed upon program will lead the country to a point where it returns to growth, has a sustainable debt burden, and can borrow from private markets. The most important problem with the commitments that Greece has made in the past two years is that its fiscal policy is pro-cyclical – that is, the government has been, and is committed to, tightening its budget while the economy is in recession.

Suggested Citation

  • Mark Weisbrot & Juan Antonio Montecino, 2012. "More Pain, No Gain for Greece: Is the Euro Worth the Costs of Pro-Cyclical Fiscal Policy and Internal Devaluation?," CEPR Reports and Issue Briefs 2012-07, Center for Economic and Policy Research (CEPR).
    • Handle: RePEc:epo:papers:2012-07
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    File URL: http://www.cepr.net/documents/publications/greece-2012-02.pdf
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    References listed on IDEAS

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    1. Yeyati, Eduardo Levy & Panizza, Ugo, 2011. "The elusive costs of sovereign defaults," Journal of Development Economics, Elsevier, vol. 94(1), pages 95-105, January.
    2. Mark Weisbrot & Rebecca Ray & Juan Montecino & Sara Kozameh, 2011. "The Argentine Success Story and its Implications," CEPR Reports and Issue Briefs 2011-21, Center for Economic and Policy Research (CEPR).
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Weisbrot, Mark. & Jorgensen, Helene., 2013. "Macroeconomic policy advice and the article IV consultations comparative overview of European Union member states," ILO Working Papers 994855133402676, International Labour Organization.
    2. Yochanan Shachmurove & Alojzy Z. Nowak, 2012. "Failing Institutions Are at the Core of the Euro Crisis," PIER Working Paper Archive 12-041, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    3. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "Provocările politicii monetare [Monetary policy challenges]," MPRA Paper 50261, University Library of Munich, Germany, revised 28 Sep 2013.
    4. repec:ilo:ilowps:470297 is not listed on IDEAS
    5. Matsumoto, Makiko. & Hengge, Martina. & Islam, Iyanatul,, 2012. "Tackling the youth employment crisis : a macroeconomic perspective," ILO Working Papers 994702973402676, International Labour Organization.
    6. repec:ilo:ilowps:485513 is not listed on IDEAS
    7. Alexi Thompson, 2013. "Research Note: Greek Tourism: Return to the Drachma?," Tourism Economics, , vol. 19(6), pages 1475-1481, December.
    8. George PETRAKOS, 2014. "Economic Crisis In Greece. European And Domestic Market And Policy Failures," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 39, pages 9-33.
    9. Mark Weisbrot & David Rosnick & Stephan Lefebvre, 2015. "The Greek Economy: Which Way Forward?," CEPR Reports and Issue Briefs 2015-04, Center for Economic and Policy Research (CEPR).
    10. Alojzy Nowak & Yochanan Shachmurove, 2012. "Economic Institutions And The Euro," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 8(2), pages 7-23.
    11. João Carlos Graça & Rita Gomes Correia, 2019. "Economic and political aspects of the persisting crisis in southern Europe," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 27, pages 70-85.

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    More about this item

    Keywords

    greece; euro; europe; devaluation; procyclical; countercyclical; imf;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F - International Economics
    • F3 - International Economics - - International Finance
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F1 - International Economics - - Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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