The IMF has just released its latest review of the Greek economy. “Following a deep and protracted contraction,” it says in its press release, “growth has finally returned to Greece.” The green light has been given for Greece's exit from its bailout program in August 2018.
For many, this is welcome news. Greece has turned a corner. The dark days are behind it, and the future will be bright. But is this really the end of Greece's troubles - or will there be more pain to come?
The magnitude of Greece's collapse over the last decade is extraordinary. Right at the start of the IMF’s review is this chart, which compares the fall in Greek output over the last 10 years with other major historical contractions, including the U.S.’s Great Depression:
Greek contraction compared with other major peacetime contractions
The Greek people have just lived through a Depression as deep as the Great Depression and considerably longer. It is now the greatest recorded peacetime Depression.
Fortunately, the Greatest Depression may now have run its course. The Greek economy grew by 1.4% in 2017, and the IMF projects that GDP growth will rise to 2% in 2018 and 2.4% in 2019.
Of course, IMF growth forecasts for Greece need to be treated with considerable caution. As the Greek economy sank ever deeper into depression, the IMF continued to predict that growth would rebound "any day now." The satirical blog ZeroHedge lampooned the IMF’s dire forecasting record as “hockey stick comedy.” But Greece did emerge from its long-running depression in 2017, and indications so far are that growth will be maintained this year.
In part, Greece's recovery is due to generally strong Eurozone growth: a rising tide floats all boats, as they say. But the IMF says it is also because of Greece’s own painful reform efforts:
The large macroeconomic stabilization effort, structural reforms, and a better external environment contributed to an increase in real GDP….
I suppose the IMF would have to say that, really: after all, if the structural reforms it insists upon don’t result in stronger growth, what on earth is their point?
The legacy of the Greatest Depression, even with the doubtful benefit of those structural reforms, is a terribly weak and deeply damaged economy. Adult unemployment, which peaked at over 25% at the height of the Greatest Depression, is still over 20%, while youth unemployment is twice as high. In a footnote to its review, the IMF comments that structural unemployment (the average excess of people over jobs across the business cycle) was 15% in 2016 and is expected to fall only gradually “over the next two decades.” Many of Greece’s young people will be middle-aged by the time there is any work for them. Some may never work at all. An entire generation thrown...