The Washington PostDemocracy Dies in Darkness

Greece’s recession is over, but its depression will be the worst in history

Source: Greece National Statistics; European Commission; Angus Maddison

It only took six years, but Greece's recession is finally over. Just don't call it a recovery just yet.

Indeed, according to the latest gross domestic product numbers, Greece's economy actually stopped shrinking at the start of the year. We didn't realize that before, because it just switched over from reporting GDP on a year-on-year to a quarter-on-quarter basis. So it turns out that it grew at a 3.2 percent annual pace in the first quarter, 1.2 percent in the second, and 2.8 percent in the most recent one. It's been enough to  send unemployment all the way down to ... 25.9 percent.

Greece's depression, in other words, is still nowhere near done. You can see that easily enough in the chart above, which I've modified from The Economist. It compares Greece the past few years with what used to be the gold standard of economic catastrophe: the U.S. during the Great Depression. Now, Greece's economy fell marginally less than America's did back then — around 27 percent at its worst — but the biggest difference between the two is the slope of the recovery. The U.S., as you can see, rocketed back once FDR devalued the dollar and started spending more. Only the double whammy of premature fiscal and monetary tightening knocked it off track in 1937.

Greece, though, has gotten nothing but fiscal and monetary tightening. It has nobody to blame but itself for that first part. The Greek government, after all, wasn't forthcoming about how much it was spending during the boom, so it's had to cut its deficit from an unthinkable -19.1 percent of potential GDP to 1.6 percent today. (As point of comparison, the U.S. "only" cut its from -7.2 percent to -4 percent over the same period).

But even worse has been the ECB's see-no-depression, hear-no-depression approach to policymaking. Every step of the crisis, it's debated whether to do too little too late or too late too little, before deciding: yes. And that's not counting the times it's made things actively worse by raising rates, like it did twice in 2011, to stamp out inflation that was already passing.

It's been barely enough to keep the common currency together, but not out of a Japanese-style lost decade. Indeed, Greek prices have been falling for over a year now, which has been both a cure and a disease. That's because lower wages have helped Greece regain a measure of competitiveness, while at the same time making debts harder to pay back. It'd be much better if the ECB would do its job, and keep inflation around 2 percent, so Greece could get its relative wages down without having to actually cut them. That way, Greece could actually recover within a generation.

But that's not the world the live in, which is why the European Commission thinks that Greece's comeback, like its collapse, will be nasty, brutish, and long. As you can see in the dotted line, the Commission projects that Greece's economy will still be 20 percent below its pre-crisis peak by the end of 2016. At that pace, it could take till 2022 or so for Greece to get all the way back to where it was in 2007.

In other words, Greece is only halfway through its Greatest Depression.