Greece’s economy contracted at an annual rate of 4.6 percent from April to June, according to data released early Monday. Together with first quarter GDP, the numbers mean the Greek economy is shrinking at a 5.1 percent rate so far in 2013. All told, the austerity-plagued country’s output is now 23 percent smaller than it was at the beginning of 2008, Reuters noted.
That massive, ongoing contraction means Greece is likely to need further bailout funds from European authorities, which threatens to perpetuate the vicious cycle of bailout-mandated spending cuts and layoffs that further weaken the economy. That cycle has now pushed unemployment to 27.6 percent, according to numbers released Friday. It’s caused a collapse in the country’s birthrate and a spike in the rate of stillbirths. And it’s lead investors to redesignate Greece as an ‘emerging market’ rather than a ‘developed country.’
This is far from what the country was promised by the international community that imposed the bailout terms. The International Monetary Fund (IMF) projected the Greek economy would contract by 5.5 percent over three years, with its unemployment rate peaking at 15 percent, before the cuts, layoffs, and tax increases mandated by the bailout could lead the country back to growth. Since the country blew past those thresholds and still has not seen a turnaround, the IMF has conceded its projections were too optimistic, but has not changed its policy recommendations.
“The fantasy of expansionary austerity,” as Paul Krugman calls it, continues despite Greece’s example. In the U.S., the automatic budget cuts known as sequestration are costing between 0.7 and 1.2 percentage points of GDP growth. Reversing the cuts would add somewhere between 900,000 and 1.6 million jobs to the economy. The IMF has called the cuts “excessively rapid” and warned they are undermining both short-term and long-term growth. The shift from stimulus to austerity during 2010 has held back economy growth in nearly every quarter since. And yet, despite the House GOP’s apparent inability to pass concrete spending bills that actually adhere to the cuts they’ve pushed for since reclaiming a majority in 2010, Speaker John Boehner (R-OH) has refused to entertain even a temporary reversal of the cuts.