The Greek myth of “expansionary austerity” continues to be accepted as reality as the Greek government agrees to more cuts to try to avoid a default next month.
These new cuts (in the minimum wage, public sector employment, private sector salary increases) come as unemployment in Greece has reached 21%, and the economy continues to shrink. Greece’s economy is expected to contract by about 6% this year, having already contracted almost 12% between 2009 and last year.
More cuts mean more unemployment, more contraction in the economy, and still higher deficits, which then lead to more cuts.
Greece needs policies that will promote growth, which in the short term means more government spending, not less. Greece needs to leave the euro zone, which it never should have joined in the first place.
This is the counter-productive economic policy that we all thought the Great Depression had taught us to avoid. It’s baaaaaaack!
And dumb decisions made in Athens today could bite President Obama in the tush on November 6.