What Africa can teach the eurozone

There is no solution to the Greek crisis other than a restructuring of its debt, argues leading Indian economist Jayati Ghosh. The experience of heavily indebted African countries suggests that austerity measures might not only threaten economic recovery in the eurozone but could also trigger further recession.

Published on 18 May 2010 at 10:37

It is now clear that the problems of the Greek economy – and the eurozone – have not been and cannot be solved by the large infusion of emergency finance from the ECB and the IMF. The Greek government is being asked to implement austerity measures that will cause a major decline in incomes and employment not just now but in the foreseeable future, and which will not correct the existing imbalances but actually worsen them.

The heavily indebted poor countries (HIPCs) of Africa could tell the Greeks a thing or two about this process. They could tell them how the deflationary measures that are imposed on governments cause economic activity to go into a downward spiral that destroys existing capacities and prospects for future growth, and pushes large sections of the population into a fragile and insecure material existence.

They could tell them about how it is fundamentally unsustainable, because the downslide in GDP makes it ever harder to service the debt, which in turn keep not only piling up, but even expanding, because of the unpaid interest that keeps getting added to the principal and then compounded, so that the country’s debt just keeps rising even with no fresh inflows. Read full article in the Guardian

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