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The latest news worth reading February 15, 2012

Posted by proeconomia in Fiscal policy, Main, Monetary policy, News on Greece, On the crisis, Opinion.

Here are two articles from Reuters and Bloomberg. In the first article from Reuters, after some discussion on the current status of Greece, points to the following: “Greece is well on its way to suffering one of the biggest slumps of modern history. Gross domestic product has contracted 16 percent from its peak and the austerity will make that worse…”On the current path – which is not sustainable in my view – we may very well see Greek GDP go down 25-30 percent, which would be historically unprecedented. It’s a disastrous crisis for them,” said Uri Dadush, at the Carnegie Endowment think tank in Washington. That would put Greece in the same league as the United States, where the economy shrank 29 percent during the Great Depression.”


In the second article from Bloomberg, a more optimistic view is presented. Here are some excerpts: “Perhaps surprisingly, ordinary Greeks remain loyal to the euro. An opinion poll by the Greek agency Public Issue last week put support for keeping the common currency at 70 percent, largely unchanged from previous surveys. Greeks appear to trust their government’s warnings that as bad as the situation is now, leaving the euro would make it worse.” But on the other hand, “Indeed, it is the rest of the euro area that is beginning to hint at divorce. Since Friday, a parade of euro-zone politicians has emerged to say that, if necessary, a Greek exit from the euro would be acceptable because the country can now be firewalled from other weak economies.” Nice! And the article continues: “As we have said before, Greece needs a much deeper default if a bailout is to work, and the currency union needs a larger commitment of money from its members to remain whole. The German plan is not working and urgently needs to be expanded. Instead of warning Greeks that they aren’t needed, euro- area leaders should do a better job of explaining to them why painful measures are needed and how their own economies are sharing the burden of fixing what is, in the end, a misdesigned currency…. The politics of anger can quickly overtake rational economic debate. How that would unfold is impossible to predict, but it is unwise to assume that Greeks would never decide to roll the dice on a euro exit, putting to the test assurances that contagion won’t follow.”



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