In a one-chart summary, why Euro has been a painfully failing experiment in monetary policy:
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The above chart shows the comparative in real GDP levels between the Great Depression in the U.S. (1929-1936) and the Great Recession in Greece (starting from 2008 with data through 2018, and then using IMF estimate for 2019 published in April 2019 WEO, and IMF WEO forecasts from 2020 through 2024, data from 2025 on is taken at a linear trend using 2024 growth forecast). In simple terms, the U.S. real GDP reached its pre-Great Depression levels in the 7th year following the onset of the crisis, although some estimates put this to year 10, depending on the base used. Greek Great Recession is now in year 11, and counting. By the end of 2019, the IMF estimates that the Greek economy will be 22.1 percent below the 2007 levels, and by 2024 (the furthest IMF forecast we have), it is expected to be 16.2 percent below the 2007 levels.
While one can make the point on Greece’s ‘unique status’ as an economy that should never have been in the Euro in the first place, three arguments stand out against this point:
- Greece is a member of the Eurozone, and if this membership was attained over all rational arguments against it, this very fact shows that the Euro is a poorly structured monetary arrangement;
- As a member of the Eurozone, Greece should have been provided with monetary and fiscal tools for addressing the massive crisis the country experienced. Per chart above, it clearly was not accorded such: and
- Greece is hardly the only economy in this situation. Italy is patently in the same boat, and as shown in the chart below, nine out of the EA19 states have experienced longer duration of recovery from the Great Recession than the U.S. from the Great Depression.
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