Greece should look before it leaps

[CHIMO]

As of today the idea that Greece might be better off leaving the euro and renegotiating its debt is considered by many to be unthinkable. Instead, the country is embarking upon a programme of "internal devaluation" – in which it keeps the euro and lowers its real exchange rate by creating enough unemployment to drive down the country's wages and prices.

Let's compare this process to two other countries that have tried it – one which abandoned it after three and a half years – Argentina – and one that is continuing it – Latvia.

First, Greece. Figure 1 shows the IMF's April 2010 projections for real (inflation-adjusted) GDP. Note that in 2015, Greece still does not reach its pre-crisis (2008) level of GDP. However, these projections are already out of date; the current projections from the Greek finance ministry show a 4% decline for 2010, whereas the IMF's projections had only shown a 2% drop. Moreover, it will most likely be worse; when Latvia began its "internal devaluation" in 2008, the IMF projected a 5% drop in GDP for 2009; it came in at more than 18%. Result: Greece will probably need at least eight or nine years, if things go well under the current programme, to reach pre-crisis output.

http://www.guardian.co.uk/commentisfree/cifamerica/2010/may/18/greece-latvia

[Vincardog]

1. They should sue the hedge funds that created the 'crisis'