Monthly Archives: June 2015

The four ways to end the Greek crisis, from Obama’s former top economist

By Jim Tankersley

A European Union flag, left, hangs beside a Greek national flag beneath the Parthenon temple on Acropolis hill in Athens, Greece, on Tuesday, May 1, 2012. It is “entirely possible” IMF, EU will refuse to make next payment to Greece if new govt doesn’t fulfill its commitments, UBS’s Stephane Deo says in note to clients before May 6 elections. Photographer: Simon Dawson/Bloomberg

It wasn’t that long ago that Austan Goolsbee worked in the White House, as President Obama’s top economist, and a financial crisis in Greece was threatening the global economy. Now Goolsbee is back teaching at the University of Chicago, Obama is halfway through his second term … and Greece is rearing up again.

We shouldn’t be surprised, Goolsbee says, because Greece and its fellow Eurozone nations are trapped in a cycle of differential shocks — which is to say, they’re seeing what happens when different parts of a unified currency area experience vastly different economic events. Greece is mired in recession, with low productivity growth, while countries such as Germany are seeing their economies expanding and productivity rising at a faster clip. If Greece had its own currency, it would weaken against its neighbors until growth and productivity sputtered back to life.

As it is, Goolsbee said in a phone interview Monday, there are only four ways to break the cycle while keeping Greeze in the Euro – and it’s not clear European leaders are willing to see any of them through.

“It’s not inevitable that everything blow up in a flaming mess,” he said. “It’s just that, if it doesn’t blow up in a flaming mess, it’s going to go on in a very recognizable pattern.” The rest of the interview is edited for length.

How should economic policymakers – the Fed, the U.S. government, Europeans – …read more

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Greece’s crisis has almost reached the point of no return

By Matt O’Brien

(Simela Pantzartzi/EPA)

At some point, the unthinkable becomes the inevitable. That moment—leaving the eurozone—may be coming for Greece now that its latest bailout battle with Europe has degenerated into the fiscal equivalent of trench warfare. It’s bad enough that Greece’s ruling party, Syriza, has resorted to calling a referendum next Sunday on whether or not they should accept Europe’s terms.

If Greece votes Yes, there would probably be new elections and another bailout. But if Greece votes No, it would probably have to ditch the euro and bring back its old currency, the drachma. In the meantime, though, Athens is closing the country’s banks, and preventing people from moving much money abroad in a capitulation to the panic gripping its financial system. That became its only option after the European Central Bank announced on Sunday that it wouldn’t approve any more emergency loans to Greece’s banks.

Now it might be hard to believe, but Greece and Europe really aren’t that far apart on a deal. Europe wants Greece to cut its pensions more than it already has—which, in some cases, has been as much as 40 percent—but Greece only wants to cut them half as much and make up the rest with higher taxes on businesses. In other words, both sides agree how much austerity Athens should do, just not how it should do it. The problem, as it always has been, is the politics. Syriza insists that it has “red lines” over pension cuts it cannot cross, but Europe has quite literally drawn red lines through them and said, take it or leave it. This hardline stance is more about warning anti-austerity parties in Spain and Portugal that there’s nothing to be gained from challenging the continent’s budget-cutting status quo as it is about the <a class="colorbox" href="http://blogs.ft.com/brusselsblog/2015/06/24/leaked-creditors-counterproposal-to-athens/" …read more

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