Emiliano Brancaccio

Emiliano Brancaccio

Materiale didattico, divulgativo e per la ricerca

Technical conditions for Grexit

translated by Revolting Europe, 22 February 2015

by Emiliano Brancaccio and Gennaro Zezza

You cannot say that between 2010 and 2014, Greece has not “done their homework” assigned by the Troika. The tax burden has grown by five percentage points of GDP, public spending has fallen by a quarter and wages have fallen by twenty percentage points. The European Commission has always maintained that these policies would not have depressed the economy and would have boosted competitiveness. But its Greek GDP forecasts have been repeatedly been wide of the mark: the collapse of production in Greece showed a gap compared with the estimates of Brussels that sometimes exceeded the embarrassing figure of seven percent of GDP.

Furthermore, despite the reduction in costs and wages, the results on competitiveness were different from expectations: the balance with respect to foreign countries has improved, but much due to a collapse in income and imports than a bounce back in exports. Nor can we say that the policies set by the Troika have stabilized budgets: the budget deficit was reduced laboriously but the drop in production has meant an explosion of the ratio of government debt to GDP of more than thirty percentage points. The Greek case, mind you, is extreme but does not in any way constitute an exception. It represents the clearest confirmation of the forecast of Economists’ Warning published in September 2013 on the Financial Times: instead of stabilizing the eurozone, the current European policies feed a debt deflation, accentuate the differences between the countries of Northern and Southern Europe and bury the chances of survival of monetary union.

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