February, 23 2012, 08:40am EDT

New Paper Argues Greece Should Consider Default and Exit From Euro
Looks at Greece’s Prospects With "Internal Devaluation"
WASHINGTON
A new paper from the Center for Economic and Policy Research (CEPR), "More Pain, No Gain for Greece: Is the Euro Worth the Costs of Pro-Cyclical Fiscal Policy and Internal Devaluation?" looks at Greece's recent experience with "internal devaluation" and finds that there is a high risk of continued prolonged recession. Updating the IMF's most recent projections, the authors find that Greece's GDP will have shrunk by 15.8 percent before it is forecast to begin growing. This would make Greece's loss of output among the worst of financial crises going back to the Great Depression. But the paper argues that Greek losses are likely to be even worse.
"The IMF has consistently underestimated the depth of the Greek recession," said Mark Weisbrot, CEPR Co-Director and lead author of the paper. "At some point, it becomes rational for Greeks to ask, is the euro worth this kind of punishment?"
The authors argue that the most important problem with the commitments that Greece has made to the European authorities is that its fiscal policy is pro-cyclical - that is, the government has been, and is committed to, tightening its budget while the economy is in recession. In 2010-11, the Greek government adopted measures to cut spending by 8.7 percent of GDP. This is comparable to cutting U.S. federal spending by $1.3 trillion.
Greek unemployment hit a record of 20.9 percent in November and the IMF forecasts that it will still be at 17 percent in 2016. Employment as a percentage of the working age population is now less that it was in 1994.
The Greek government has agreed to reduce public employment by 150,000 workers by 2015, to cut the minimum wage by 20 percent (and by 32 percent for those under the age of 25); and to weaken collective bargaining. All of this will have the effect of reducing living standards for workers and redistributing income upward.
The economic theory behind these changes is that of "internal devaluation," in which wage costs, lowered by the recession and high unemployment, are pushed down far enough so that the economy becomes more competitive internationally and can recover through exports. But after four years of recession and reaching record-high unemployment, there has still been no internal devaluation.
The authors also look briefly at the alternative of a planned default and exit from the euro, considering that such an outcome might happen in any case due to recurrent crises and continued recession. They look at the case of Argentina, which unsuccessfully tried an internal devaluation with a deep recession from 1998-2001, as a relevant comparison. After default in December 2001 and devaluation a few weeks later, the Argentine economy shrank for just one quarter (a 4.9 percent loss of GDP), but then recovered and grew by more than 63 percent over the next six years.
"Argentina's success after its default and devaluation show that rapid recovery is possible," said Weisbrot. "It was not, as many claim, a commodities boom, or even export-driven growth. Argentina recovered rapidly because it was able to abandon the kinds of destructive economic policies that Greece is following today, and switch to pro-growth policies."
The paper notes that Argentina reached its pre-recession GDP in just three years, while Greece is expected to take at least a decade to reach that benchmark.
The authors suggest that if the European authorities are unwilling to consider other alternatives, a planned default and exit from the euro is one alternative that should be considered.
The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.
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Hundreds of people hit the streets of Milan, Italy on Saturday to protest the far-right government's assault on the parental rights of same-sex couples.
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Italy legalized same-sex civil unions in 2016, but it stopped short of granting gay and lesbian couples the right to adopt amid opposition from the Catholic Church. Since then, courts have made decisions on a case-by-case basis in response to lawsuits from prospective adoptive parents.
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In a podcast, Sala said that "it is an obvious step backwards from a political and social point of view."
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Surrounded by students, teachers, and advocates, Democratic Minnesota Gov. Tim Walz on Friday afternoon signed into law a bill to provide breakfast and lunch at no cost to all of the state's roughly 820,000 K-12 pupils regardless of their household income.
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In a now-viral clip from the state Senate's debate over the bill earlier this week. Sen. Steve Drazkowski (R-20) questioned whether hunger is really a problem in Minnesota—even as the state's food banks reported a record surge in visits last year, months before federal lawmakers slashed pandemic-era Supplemental Nutrition Assistance Program (SNAP) benefits.
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During Friday's signing ceremony, Lt. Gov. Peggy Flanagan (DFL) said, "To our decision-makers who believe they have never met someone who is experiencing or has experienced hunger: Hi, my name is Peggy Flanagan, and I was 1 in 6 of those Minnesota children who experienced hunger."
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As Minnesota Reformerreported: "The majority of Minnesota schools receive federal funding from the National School Lunch Program, which reimburses schools for each meal served, though it doesn't cover the cost of the entire meal. Under the new law, schools are prohibited from charging students for the remaining cost, and the state will foot the rest of the bill—about $200 million annually."
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Last month, The Star Tribune editorial board opined that providing free breakfast and lunch to all of Minnesota's students, including affluent ones, is "excessive."
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Trump has recently "excused or dismissed the violence of January 6," one journalist warned. "He is an authoritarian willing to (again) use violence for his own ends."
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Former U.S. President Donald Trump claimed Saturday on his social media platform that he "will be arrested" on Tuesday and implored his supporters to "protest" and "take our nation back," sparking fears of additional right-wing violence.
Trump's call to action was reminiscent of how, six weeks after losing the 2020 presidential election, he took to Twitter to urge his supporters to join a "big protest" in Washington, D.C. on January 6, 2021. "Be there, will be wild!" he wrote. Hundreds of far-right insurrectionists showed up and, after Trump told them to march from a rally near the White House to the Capitol, stormed the halls of Congress in a bid to prevent lawmakers from certifying President Joe Biden's win. Multiple people died as a result of the failed coup, which was fueled by Trump and his Republican allies' incessant lies about voter fraud.
Trump is expected to be indicted by a Manhattan grand jury in a criminal case involving hush money paid to women who said they had sexual encounters with the former president, but its timing is unclear.
Just before 7:30 am ET on Saturday, Trump baselessly declared on Truth Social: "Illegal leaks from a corrupt and highly political Manhattan district attorney's office... indicate that, with no crime being able to be proven... the far and away leading Republican candidate and former president of the United States of America will be arrested on Tuesday of next week. Protest, take our nation back!"
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Early Saturday morning, there was little evidence yet that Mr. Trump's new demand for protests had been embraced by extremist groups.
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Meanwhile, Trump continued to lie about the Mar-a-Lago search on Truth Social, sparking an "unprecedented" surge in threats against FBI personnel and facilities.
As Dáte noted on Saturday morning, many people downplayed warnings issued ahead of the January 6 assault.
"Many of Trump's core supporters want authoritarianism," the journalist tweeted. "They believe in neither democracy nor the rule of law."
As the Times reported:
Although prosecutors working for the [Manhattan] district attorney, Alvin L. Bragg, have signaled that an indictment of Mr. Trump could be imminent, there was no immediate indication as to why the former president appeared confident that he would be arrested Tuesday. People with knowledge of the matter have said that at least one more witness is expected to testify in front of the grand jury, which could slightly delay any indictment.
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Trump is expected to be charged in connection with payments his former lawyer, Michael Cohen, made to silence adult film actress Stormy Daniels and Playboy model Karen McDougal—both of whom alleged affairs with Trump—in the run-up to the 2016 presidential election.
Cohen has testified that at Trump's direction, he orchestrated payments totaling $280,000 to Daniels and McDougal. According to Cohen, the Trump Organization reimbursed him $420,000 and classified it as a legal fee. Trump's former fixer pleaded guilty to federal campaign violations in 2018.
Trump has so far evaded charges but that could soon change, as prosecutors are expected to accuse Trump of greenlighting the false recording of expenses in his company's internal records.
Citing five unnamed officials familiar with the matter, NBC Newsreported Friday that local, state, and federal law enforcement and security agencies are preparing for the possibility of a Trump indictment as early as next week.
If indicted, Trump would become the first U.S. president to face criminal charges in or out of office. Trump, who has denied all wrongdoing, says that he will keep campaigning regardless of whether he is arrested.
The Manhattan D.A.'s hush money probe is just one of Trump's many legal woes. The twice-impeached president is also facing a state-level criminal investigation in Georgia over his efforts to overturn that state's 2020 election results, as well as federal probes into his coup attempt and his handling of classified government documents.
Nevertheless, Trump is still seen as the front-runner to win the GOP's 2024 nomination.
David Aronberg, the state attorney for Palm Beach County, Florida, said Saturday morning that if Trump is indicted in New York, "there will be protests here," warning: "You have to worry about potential violence."
He pointed out that questions remain as to whether Trump would surrender to New York authorities or face extradition. Republican Florida Gov. Ron DeSantis, another authoritarian demagogue who is widely considered Trump's leading rival for the GOP's 2024 nomination, "has to sign off [any] extradition orders," said Aronberg.
The Times noted that if "Trump is arraigned, he will almost certainly be released without spending any time behind bars because the indictment is likely to contain only nonviolent felony charges."
However, The Associated Pressreported that it is not clear when the other investigations into Trump "will end or whether they might result in criminal charges."
"But they will continue regardless of what happens in New York," the outlet explained, "underscoring the ongoing gravity—and broad geographic scope—of the legal challenges confronting the former president."
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