GREECE THEN AND NOW

GREECE
Prior to the Great Depression, the Greek economy enjoyed
years of growth, a commercial activity spree, and a
sharp increase of bank loans. When the Depression struck,
credit constricted, choking internal economic activity. By
early 1932, central bank reserves had tumbled, speculators
dumped the drachma and bond yields soared.
The League of Nations agreed to provide a loan in March
1932 – in return for austerity measures. The Greek government
declined. Instead, it floated the drachma, which quickly
devalued, declared a public debt moratorium, and increased
infrastructure spending to strengthen its economy. By 1934,
agriculture and industrial production rose, the currency was
more stable, and the budget was balanced.
The situation is different now. Greek banks barely registered
domestic loan losses in 2009 (and were healthier than
big German and French banks), but their trading books were
over-exposed to international bets. Their borrowing costs
rose sharply on the financial community’s reaction to a series
of downgrades, making the cost of running the country
prohibitive.
Remarkably, Greece’s GDP has only contracted 13 percent
from its December 2008 high. (Britain’s GDP has fallen
by more.) The quandary is Greece’s debt-to-GDP ratio of 160
percent. (It hovered around 100 percent from 1994 through
2008.) The unemployment rate doubled to 20.9 percent overall,
while youth unemployment rates have doubled to 48 percent
since January 2008. The Greek stock market stands at
just one-fifth of its January 2008 level.
After four rounds of austerity, nationwide protests, 110
billion euros in IMF and ECB bailouts, a downgrade to junk,
and a Prime Minister replacement, Greece’s tragedy had
just begun. Despite no signs of the first bailout working,
Euro elites finalized another 130 billion euro ($170 billion)
bailout in March 2012, failing to grasp that severe austerity
doesn’t, can’t, and won’t promote economic growth.
Anywhere.
During the Great Depression, Greece stabilized more
quickly than larger European countries – by floating the
drachma (the equivalent of leaving the euro), negotiating
with creditors (telling banks to eat their losses), and increasing
internal public focus (the opposite of what’s going on
now). Absent that fortitude today, and in essence the target
of a Mafia-style hit by the financial mob, Greece’s forecast
remains dire. Yet, the power-elite brain trust is debating a
third unhelpful bailout.