Greece’s depression could prove worst in modern history

How badly is Greece hurting from its debt woes and onslaught of austerity? One World Bank official tells the paper Ekathimerini that the country is on pace to suffer the worst economic contraction in the postwar era. “On the current path — which is not sustainable in my view — we may very well see Greek GDP go down 25 to 30 percent, which would be historically unprecedented,” said Uri Dadush, a former World Bank official.

Austerity’s not terribly popular around these parts. (Simon Dawson/Bloomberg) The previous records were set by Argentina — which contracted 20 percent after it defaulted on its debts in 2001 — and Latvia, whose economy shrunk 24 percent after the 2008 financial crisis. (For various reasons, economists seem to consider the break-up of the Soviet Union, which shrunk Russia’s economy 44 percent, a special case).

And Greece could well beat them all, even with the bailout it’s getting from the rest of Europe. After four years of recession, the country has contracted 16 percent, and it’s hard to see how Greece will start growing anytime soon with further sharp budget and wage cuts on the horizon, as the country struggles to rein in its debt load (which, in turn, has been exacerbated by endless recession). Typically when countries are caught in this trap, they drastically devalue their currency to shrink their debts. But as long as its tethered to the euro, Greece doesn’t have that option.

Read Howard Schneider’s report for more on Greece’s debt woes — he notes that the new three-year, $170 billion rescue package from the rest of Europe “depends heavily on Greece returning to economic growth.” But how likely is that? Meanwhile, Russell Shorto has a longer piece on how everyday Greeks are faring under the barrage of wage reductions and layoffs.