Ending Greece’s Nightmare

By:  Paul Krugman

Alexis Tsipras, leader of the left-wing Syriza coalition, is about to become prime minister of Greece. He will be the first European leader elected on an explicit promise to challenge the austerity policies that have prevailed since 2010. And there will, of course, be many people warning him to abandon that promise, to behave “responsibly.”

So how has that responsibility thing worked out so far?

To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.

You see, the economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. Greece was already in recession when the deal was reached, but the projections assumed that this downturn would end soon — that there would be only a small contraction in 2011, and that by 2012 Greece would be recovering. Unemployment, the projections conceded, would rise substantially, from 9.4 percent in 2009 to almost 15 percent in 2012, but would then begin coming down fairly quickly.

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