Business

Title of The Article: Analysis: IMF policy for Greece: from deflation back to inflation?

Author of the Article: Epaminondas Marias

URL direct link to the Article: http://www.athensnews.gr/articles/13405/27/08/2010/30050

The article talks about the financial crisis in Greece, and the primary condition that the International Monetary Fund is demanding of Greece in return for the money loaned. Dominique Strauss-Kahn, the head of the IMF, explains that if Greece is going to emerge from the crisis, recovery should be based on minor wage and benefit cuts in order to reduce costs and improve price competitiveness. 

The IMF believes that one of the primary problems of the Greek economy is its lack of competiveness; they allege that the earnings of Greek workers are higher than the earnings of workers in other countries in the euro zone. However, this is not true.

Unlike other members of the euro zone, Greece cannot rely on currency depreciation to boost its competitiveness in the global economy. According to the IMF, it should move to an “internal depreciation”, or a cut back in the living standards by means of extensive wage cuts. According to the newspaper article, this reduction of salaries “would result in reduced consumption, leading to further recession and to a further reduction in tax revenues for the state.”

Currently, the Greek budget deficit has swelled to 12.7% of GDP. By imposing unpopular measures to reduce the income of its citizens and increase taxes, the Greek economy is now in a deep recession and the IMF is caught up in the vicious cycle of its own policy.