Europe says Greece is a comeback story. The I.M.F. isn’t convinced.

“Though Greece’s economy is growing, it is still only three-quarters of its precrisis size. Gross domestic product has expanded since the middle of last year, buoyed by an apparent renewal in exports. But much of the export growth comes from refining imported oil and exporting the final product — an activity that sustains tens of thousands of jobs, but does not filter through to the broader economy.

Unemployment, which has fallen from a peak of 28 percent, is still stuck above 20 percent, the highest in the eurozone. Over half a million Greeks left during the crisis in a brain drain that has hampered a recovery. Worryingly, poverty has ‘risen dramatically,’ according to the Organization for Economic Cooperation and Development, a group of rich nations. […]

[The IMF] also suggested reducing tax rates that in some cases reach as high as 70 percent of a person’s income. The Greek government jacked rates up so sharply in the last couple of years that the country’s notorious black market has grown again.”


Portugal dared to cast aside austerity. It’s having a major revival.

“At a time of mounting uncertainty in Europe, Portugal has defied critics who have insisted on austerity as the answer to the Continent’s economic and financial crisis. While countries from Greece to Ireland — and for a stretch, Portugal itself — toed the line, Lisbon resisted, helping to stoke a revival that drove economic growth last year to its highest level in a decade. […]

Voters ushered Mr. [António] Costa, a center-left leader, into power in late 2015 after he promised to reverse cuts to their income, which the previous government had approved to reduce Portugal’s high deficit under the terms of an international bailout of 78 billion euros, or $90 billion. Mr. Costa formed an unusual alliance with Communist and radical-left parties, which had been shut out of power since the end of Portugal’s dictatorship in 1974. They united with the goal of beating back some of the toughest aspects of austerity, while balancing the books to meet eurozone rules.

The government raised public sector salaries, the minimum wage and pensions and even restored the amount of vacation days to prebailout levels over objections from creditors like Germany and the International Monetary Fund. […]

The economic about-face had a remarkable impact on Portugal’s collective psyche. While discouragement lingers in Greece after a decade of spending cuts, Portugal’s recovery has pivoted around restoring confidence to get people and businesses motivated again.”

Paul Krugman: Adjustment in the euro area [Charts]

“What about austerity? Spain did a lot of tightening in the first few years of the euro crisis, but not much since then: [CHART] […]

The question then is, does this constitute any kind of vindication of either the euro or the austerity regime? As you might guess, I’d say that the answer is a clear no. Yes, adjustment can take place even with a single currency; but it’s a very slow and painful process. Yes, growth can resume once you stop imposing ever-harsher austerity; also, if you repeatedly hit yourself on the head with a baseball bat, you will feel better when you stop. 

What is true is that the single currency isn’t totally unworkable. It’s just extremely costly.”

Paul Krugman: Iceland, Ireland, and devaluation denial [Chart]

“One of the big lessons of the euro crisis has been that Milton Friedman was right — not about monetarism, but about the case for flexible exchange rates. When big adjustments in a country’s wages and prices relative to trading partners are necessary, it’s much easier to achieve these adjustments via currency depreciation than via relative deflation — which is one main reason there have been such big costs to the euro. […]

If you look at employment instead, as in the chart, Iceland did far better than Ireland; and Icelandic unemployment similarly shows a much more favorable picture. Less formally, everyone I know who tracked both countries has the sense that the human toll in Iceland was much less than it was in Ireland.

Oh, and if you remember, everyone expected the Icelandic crisis to be much worse, given the incredible scale of the banking overreach […].

I guess I understand the urge to make excuses for the single currency. But the evidence really does suggest that there are important advantages to keeping your own currency.

Paul Krugman: Austerity success stories [Chart]

“Let’s look at what passes for success in Spain, which has, somewhat incredibly, been elevated as a role model: [Chart]

We see an awesome slump that leaves Spain far below its pre-crisis level of output, and even further below its pre-crisis trend, followed by an upturn that, even if it continues at the current pace, will take many years to recover the lost ground.”

Paul Krugman: Poland versus Greece [Charts]

[Poland is] also a country with relatively low productivity by northwestern European standards, indeed lower productivity than Greece by standard international measures: [Chart]

But Poland has not had a Greek-style crisis, or indeed any crisis at all. Instead, it has powered through the turmoil of recent years: [Chart]

What’s the difference? The main answer, surely, is the euro: by adopting the euro Greece first brought on massive capital inflows, then found itself in a trap, unable to achieve the needed real devaluation without incredibly costly deflation.”

Paul Krugman: Competitiveness and class warfare [Chart]

“The chart shows real GDP per working-age adult (15-64) in France, Japan, and America since 1990. […]

What’s striking here is how similar the three look. Japan lagged in the late 1990s and early 2000s, but recovered. France has lagged since 2010, largely thanks to the eurozone crisis and its misguided austerity policies. But given how much rhetoric there is about structural problems here and there, what’s striking is how little divergence there has been among advanced countries.

What this tells you, I think, isn’t just that international competition is far less important than legend has it. It also suggests that economic growth is pretty insensitive to policy: France and the US are at the extremes of advanced-country regimes, yet there’s not much difference in their long-term performance. […]

[…] there really is the question of who gets the gains. U.S. economic growth has been OK these past 25 years; US family incomes, not so much, because such a large share of growth goes to the very top.

International competition is a mostly bogus notion; class warfare is very, very real.