Forget the crisis!, urges Krugman

[ddstory]

http://www.washingtonpost.com/opinions/the-speed-read-paul-krugmans-end-this-depression-now/2012/05/04/gIQALJl31T_story.html

The governments should finally start spending, Nobel laureate in economics Paul Krugman recommends in his new book End This Depression Now, where he sharply criticizes the austerity programs. So let's look a bit closer.

Comments

[telemann]

Well some of the austerity programs have already taken effect, and they're impacting the Greek economy enough for even IMF officials to talk about that.

Poul Thomsen, a senior International Monetary Fund official who oversees the organisation's mission in Greece, also insists that, contrary to popular belief, Athens has achieved a lot since the eruption of the debt crisis in December 2009.

"We will have to slow down a little as far as fiscal adjustment is concerned and move faster - much faster - with the reforms needed to modernise the economy," he told the Greek daily Kathimerini, adding that the policy shift would be "reflected" in the conditions foreign lenders attached to a new rescue programme for Athens.

In an extraordinary departure from the script the IMF has followed to date, the Danish official, who is also in charge of the IMF programme in place in Portugal, acknowledged there was a "limit" to what society could endure.

"While Greece certainly will have to continue to reduce its fiscal deficits, we want to ensure - considering that social tolerance and political support have their limitations - that we strike the right balance between fiscal consolidation and reforms," he said. As such, the IMF had cautioned against "an excessive pace" of fiscal reduction.

Dispelling suggestions that negotiations were fraught between the Greek government and the EU, ECB and IMF - the "troika" of creditors - Thomsen said talks over a new aid package would be "completed very soon; it is a matter of days".

Athens's first financial lifeline - a €110bn bailout granted in May 2010 - relied heavily on belt-tightening measures that included hefty tax rises and across-the-board wage and pension cuts. Although the policies helped bring down Greece's primary deficit from €24.7bn in 2009 to just over €5bn in 2011, they have proved to be explosive, prompting unprecedented social unrest and a recession of a size not seen since the second world war.

[htpcl]

Indeed: they have begun to be implemented. There's no argument about that.

[telemann]

Since 2010, with some significant impact according to IMF officials.

[htpcl]

I don't know. It took us at least 5-6 years to really start feeling the effects of the 1997 currency board.

[telemann]

If the IMF doesn't know, let's ask Mr. Bean!

[htpcl]

:-)