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It’s like an economics movie thriller, but the players are verging on tragic. A meeting had been scheduled for Wednesday in Brussels, a face to face encounter between euro zone finance ministers and Greek leaders, to hopefully finalize arrangements for that country’s second bailout ahead of a potentially explosive March default of bond payments by the Greek government.
Now, that meeting isn’t going to happen, at least on Wednesday – one Greek political party has agreed to the required commitment to austerity demanded by the euro ministers and another has not. The harsh measures include extensive public sector job, wage, and pension cuts, following earlier rounds of the same. What is surprising is that the currently ruling Panhellenic Socialist Party, PASOK, is the group agreeing to the austerity package, and the conservative New Democracy party has not yet signed on. Not as surprising is that Antonis Samaras, the leader of the latter party, is polling considerably ahead of PASOK leader George Papandreou and others, and is expected to become Greece’s next prime minister.
To no one’s surprise is that meanwhile Greece’s economy is sliding towards the abyss: a report on Tuesday showed that its GDP shrank seven percent in the fourth quarter of 2011, after a third quarter contraction of five percent. After five years of recession, the economy has decreased by 16 percent from its peak. Uri Dadush of Washington’s Carnegie Endowment, has said that “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…”. To put this in perspective, the U.S. economy shrank by 29 percent during the Great Depression.
Prime Minister Lucas Papademos, who is pushing hard for the austerity package, has promised that the Greek economy will rebound in 2013 if the bailout is approved. While a new bailout would help keep the government from default – for now – it is difficult to see how the accompanying robust cutbacks could allow for growth. However one sees it politically, government spending cuts, especially during a recession, is a cut in income and there is no more a substitute for income than there is for consumer spending, if the economy is to recover. Without recovery and growth there is really no possibility that Greece can ever pay back its debt, which is the only way to finally end this crisis. The idea of theatrical tragedy was born in Greece, and it has returned in real life to its native land.
To contact the reporter on this story: Mark Lawson at email@example.com
To contact the editor responsible for this story: Damien Hoffman at firstname.lastname@example.org
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