Greece Austerity Diet Risks 1930s-Style Depression: Euro Credit ...

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Athenes, Oct.22, hot stock picks .- Greece is spiraling into the kind of decline the U.S. and Germany endured during the Great Depression, showing the scale of the challenge involved in attempting to regain competitiveness through austerity. The economy shrank 18.4 percent in the past four years and the International Monetary Fund forecasts it will contract another 4 percent in 2013 as Greece struggles to reduce debt in exchange for its $300 billion rescue programs. That’s the biggest cumulative loss of output of a developed-country economy in at least three decades, coming within spitting distance of the 27 percent drop in the U.S. economy between 1929 and 1933,

according to the Bureau of Economic Analysis in Washington. “Austerity has been destroying tax revenue and therefore thwarting the intended effect,” said Charles Dumas, chairman of Lombard Street Research, a London-based consulting firm. “There’s no avoiding austerity, though, because these people have no borrowing power. The deficits are there.” Greece’s restructured bonds have benefitted amid speculation that creditors are poised to release more bailout funds. Greek bonds maturing in 2023, which yielded more than 30 percent at the end of May, now yield about 16.4 percent. The

next block of aid is slated to total 31 billion euros ($40.5 billion), mostly to recapitalize the nation’s banks.

1930s Experience

Wage and pension cuts have heightened tensions in Athens and other Greek cities as the economy shrivels and an anti-foreigner party flaunting a swastika-like insignia won 18 seats in Parliament. Polls suggest Golden Dawn is the third-most popular party in Greece, backed by about 14 percent of the electorate. That pits it against Marxist-inspired Syriza, the main opposition grouping, in a standoff recalling that between
Nazis and Communists in Weimar Germany.

“The experience of the 1930s says you need to stimulate the economy,” said Vassilis Monastiriotis, a senior lecturer in political economy at the London School of Economics. “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.” The German economy contracted by about 34 percent in the years after 1929 and resulted in Adolf Hitler becoming

Chancellor in 1933, according to data from the Federal Statistical Office in Wiesbaden. Even after growth resumed in Germany beginning in 1934, it took until 1937 for output to exceed the level enjoyed in 1929, the data show. ... Continue to read.

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