As of today the idea that Greece might be better off leaving the euro and renegotiating its debt is considered by many to be unthinkable. Instead, the country is embarking upon a program of “internal devaluation” – in which it keeps the euro and lowers its real exchange rate by creating enough unemployment to drive down the country’s wages and prices.
Let’s compare this process to two other countries that have tried it – one which abandoned it after three and a half years – Argentina – and one that is continuing it – Latvia.
First, Greece: Figure 1 shows the IMF’s April 2010 projections for real (inflation-adjusted) GDP. Note that in 2015, Greece still does not reach its pre-crisis (2008) level of GDP. However, these projections are already out of date; the current projections from the Greek finance ministry show a 4 percent decline for 2010, whereas the IMF’s projections had only shown a 2 percent drop. Moreover, it will most likely be worse; when Latvia began its “internal devaluation” in 2008, the IMF projected a 5% drop in GDP for 2009; it came in at more than 18 percent. Result: Greece will probably need at least eight or nine years, if things go well under the current program, to reach pre-crisis output.
Figure 1
Graph – Greece Source for figures 1 and 2: IMF International Financial Statistics and World Economic Outlook
Second, Latvia: As can be seen in Figure 2, Latvia – which set a world-historic record in 2008-2009 by losing more than 25% of GDP – is not expected to reach even its 2006 level of GDP in 2015. And in 2015, it is still 16% below its pre-crisis peak in 2007. Result: well over a decade to return to pre-crisis GDP, barring unforeseen negative events.
Figure 2
Graph – Latvia
Third, Argentina: Figure 3 shows Argentina’s recession beginning in the middle of 1998. Argentina tried the “internal devaluation” process – its currency was pegged at 1 to 1 to the dollar – until the end of 2001, leading to an economic and financial collapse. In December 2001-January 2002, the government defaulted on its debt and abandoned the fixed exchange rate. Result: after the default/devaluation, the economy continued to shrink for just one quarter (first quarter 2002). It then grew and passed up its pre-crisis peak within three years of the default and devaluation, with real (inflation-adjusted) growth of 63 percent over six years.
Figure 3
Graph – Argentina
Source: Instituto Nacional de Estadística y Censos, República Argentina
Conclusion: before making a commitment to indefinite recession and slow recovery, including many years of high unemployment and other social costs, Greece may want to consider the alternatives. They may be less painful and allow for a speedier, more robust economic recovery.
This column was previously published by The Guardian Unlimited.
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.