Greece is again in the news for the wrong reasons. National output is still much below potential, unemployment is extremely high, money is leaving the country and there is no prospect of an end to this plight without help from friendly governments.
The problem that Greece is facing now is that with a new left-wing government in office, there may be no friendly governments left.
But this is not how things should be. The politics in the eurozone and the Greek pre-election rhetoric are not allowing the real issues to get a fair hearing.
Forget for the moment the political posturing and the flexing of muscles in Eurogroup meetings. The real issue is whether eurozone mechanisms designed to support members — or bail them out — work.
The answer is clearly that they don’t. This is not something that we learn from theory or ivory-tower academia. It is something that we see in our economies. And good politicians and economists, when they see something that does not work, they change it.
But change is not what Greece’s partners are requesting from it. They are requesting more of the same, ignoring the state of its economy and the wishes of its people.
There is a lot that is good in the rescue programs. Structural reforms in labor and output markets, modernization of the legal system, along with more speedy decisions and privatizations of state enterprises, are essential if Greece is to raise its competitiveness to the levels enjoyed by its partners.
But the fiscal requirements are too stringent for any of the above to work. Eighty years ago we learned from John Maynard Keynes that you don’t fight recession with fiscal austerity. His message today is as relevant as it was in the depths of the Great Depression. Greece is in a Great Depression.