This may seem facetious some 6 years into recovery, but many policy makers don’t seem to understand the severity of the Great Recession, or its consequences. It is the major reason why Greece, and many other Eurozone countries are in so much economic trouble at present. Greece in fact is suffering from a Great Depression, as great as our own Great Depression that lasted 10 years, in all.
Actually, the Eurozone of member countries have actually suffered two recessions since 2008, thanks to their austerity policies that have cut spending and raised regressive taxes (i.e., on the poorest) in an attempt to pay down the huge debt loan incurred from the Great Recession.
Whereas the US under Fed Chairs Ben Bernanke and Janet Yellen knew early in the recovery that deflation and loss of demand was the problem, and so initiated the various Quantitative Easing programs that pumped more money into economic growth, instead of withdrawing it.
Leading economists such as Nobelist Paul Krugman and French economist Thomas Piketty have said the Great Recession equals the Great Depression in economic damage done in many of those countries.
“It’s depressing thinking about Greece these days, so let’s talk about something else, said Krugman in a recent Op-ed. “Let’s talk, for starters, about Finland, which couldn’t be more different from that corrupt, irresponsible country to the south. It’s also in the eighth year of a slump that has cut real gross domestic product per capita by 10 percent and shows no sign of ending. In fact, if it weren’t for the nightmare in southern Europe, the troubles facing the Finnish economy might well be seen as an epic disaster.”
“And Finland isn’t alone,” said Krugman “It’s part of an arc of economic decline that extends across northern Europe through Denmark — which isn’t on the euro, but is managing its money as if it were — to the Netherlands. All of these countries are, by the way, doing much worse than France, whose economy gets terrible press from journalists who hate its strong social safety net, but it has actually held up better than almost every other European nation except Germany.”
The US Great Depression is the easiest comparison to the Eurozone’s predicament today. Our economy shrank some 26 percent overall in lost production, or GDP growth, in 1932-33, and the unemployment rate rose to more than 25 percent.
Thomas Piketty, economist and author of Capital in the Twenty-First Century, outlined how much Greece has suffered in a recent German Die Zeit interview.
“To deny the historical parallels to the postwar period would be wrong. Let’s think about the financial crisis of 2008/2009. This wasn’t just any crisis. It was the biggest financial crisis since 1929. So the comparison is quite valid. This is equally true for the Greek economy: between 2009 and 2015, its GDP has fallen by 25 percent. This is comparable to the recessions in Germany and France between 1929 and 1935.”
The result of the Great Recession has been an almost overwhelming rise of sovereign debts for almost all of the western countries. U.S. debt rose to some 10 percent of GDP, as did Germany in 2008. And that is precisely why the current austerity policies haven’t brought a European economic recovery.
This is when entities such as the IMF have said that the default of sovereign debt (i.e, debt owed by governments) was “unnecessary, undesirable, and unlikely,” according to New York Times’ Eduardo Porter.
We can only hope EU and Eurozone members now realize that it will take many years to recover from such a depression and much debt restructuring, as it did during the Great Depression, and earlier.
Harlan Green © 2015
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