Austerity, Losses Push Greece Toward Depression

Continuing contraction threatens economic loss that could rival U.S. in ’30s

A protester waved a Greek flag during a rally in Athens in June. (Photo: AP) A protester waved a Greek flag during a rally in Athens in June. (Photo: AP)

With its economy on an austerity diet that has already caused a contraction of 18.4% over the past four years, Greece is on track to shrink another 4% in 2013, according to the International Monetary Fund (IMF). That could put Greece on the road to economic woes not seen since the Great Depression.

Bloomberg reported Monday that as Athens continues to try to shrink its debt level in accordance with bailout requirements, it’s headed for the largest cumulative loss of economic output in a developed country in at least thirty years—and, according to Washington’s Bureau of Economic Analysis, that loss could rival the 27% plunge the U.S. experienced during the Great Depression in the early 1930s.

“Austerity has been destroying tax revenue and therefore thwarting the intended effect,” said Charles Dumas in the report. Dumas, chairman of Lombard Street Research, a London-based consulting firm, continued, “There’s no avoiding austerity, though, because these people have no borrowing power. The deficits are there.”

In addition to economic woes, the danger rearing its head from the ’30s is the potential for political turmoil. The rise of the anti-foreigner Golden Dawn party, with its logo resembling a swastika, stirs echoes of the rise of Hitler in a debt-ridden Germany before World War II—particularly since the main opposition group in Greece is Syriza, which takes some inspiration from Marxist policies. The comparison is evocative of the similar positions of Nazis and Communists in Weimar Germany.

“The experience of the 1930s says you need to stimulate the economy,” said Vassilis Monastiriotis in the report. Monastiriotis, a senior lecturer in political economy at the London School of Economics, added, “The rise of the far right in Greece isn’t something ephemeral that will go away when the crisis ends. And it’s very dangerous if the rise of the right causes relations with neighbors like Turkey, Macedonia, say, to deteriorate.”

Data from the Federal Statistical Office in Wiesbaden indicate that Germany’s economic contraction of approximately 34% during the period following 1929 gave rise to Hitler’s ascension to power in 1933—and, further, that even after growth began again in 1934, it took Germany until 1937 to boost its output past what it had been in 1929.

The lack of results from constant and harsh austerity measures has caused European leaders to back off from their demands for continued cutbacks—which have done nothing to alleviate the situation. Greece has cut pensions, medical coverage and the pay of civil servants; it has also slashed other budgetary items, all to no avail—and is further expected to boost its retirement age from 65 to 67.

“Greece has done all that without achieving anything,” Barbara Ridpath, chief executive of the International Center for Financial Regulation in London, who headed Standard & Poor’s ratings activities in Europe until 2008, was quoted saying. “That’s the sad thing.”

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