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WEST’s Hess Publishes on the Greek Economic Crisis

March 6, 2012

Franklin L. Hess, Coordinator of the Modern Greek Program at Indiana University and lecturer in West European Studies, has written an article titled “Why Austerity Won’t Work in Greece” that appears in the March issue of Current History.  The article provides a historical background to the debt crisis and gives an alternative set of proposals for dealing with Greece’s economic problems. 

For Hess, the European Union response to the crisis has a surreal tone to it.  In his full draft of the article, which was condensed due to space limitations, he compares the actions of the so-called troika of lenders (the European Union, the European Central Bank and the International Monetary Fund) to Jonathan Swift’s A Modest Proposal:

“The austerity program that representatives of the Troika—the EU, the European Central Bank (ECB), and the International Monetary Fund—have implemented since May 2010 could be drawn from the pages of a Swiftian satire: we’ll shrink wages, raise taxes, and create mass unemployment in order to create the conditions for future budgetary health and economic growth and, on top of everything, we’ll do all this in the midst of a global recession.  Not surprisingly, the program hasn’t worked.  Economic contraction has been greater than expected; tax revenues have been less than expected; budget projections have been worse than expected; and the populace has fought its implementation every step of the way.  On top of all this, the debt crisis, rather than being contained, has actually spread to Italy and Spain.

Austerity, nearly two years in, has been a complete failure, yet somehow the only prescription that the Troika can muster as a corrective is greater austerity.  This raises uncomfortable questions: Is the Troika’s mission to reform or to punish?  And, if the Troika’s mission is actually to punish, is such collective punishment warranted?  Many Greeks have concluded that the Troika’s central aim is the latter, punishment.  The evidence is inconclusive, and there is still hope that the Troika has been engaging in misguided attempts at reform.”

Hess hopes that cooler heads will prevail and that the Eurozone will tolerate moderate levels of inflation and begin a controlled depreciation of its currency.  He argues that the structural changes that are being implemented will do little to make southern-tier economies more competitive if the Euro stays at its current levels or returns to the levels of the last several years.  Within any fiscal union, he suggests, the currency has to serve the needs of all of the participants, not just the needs of the dominant members.

Unfortunately, hope for a more moderate policy is fading.  On February 13, the Greek parliament agreed to a new series of austerity measures [http://www.cnn.com/2012/02/14/world/europe/greece-austerity-detail/index.html] handed down by the Troika while violent opposition protests raged in Athens [http://www.bbc.co.uk/news/world-europe-17007761].

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