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Waiting for Export-led Growth: Why the Troika's Greek Strategy Is Failing

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  • Dimitri B. Papadimitriou
  • Michalis Nikiforos
  • Gennaro Zezza

Abstract

Greece's unemployment rate just hit 27.6 percent. That wasn’t supposed to happen. Why has the troika--the European Commission, International Monetary Fund (IMF), and European Central Bank--been so consistently wrong about the effects of its handpicked policies? The strategy being imposed on Greece depends in large part on the idea of "internal devaluation": that reducing wages will make its products more attractive, thus spurring a return to economic growth powered by rising exports. Our research, based on a macroeconomic model specifically constructed for Greece, indicates that this strategy is not working. Achieving significant growth in net exports through internal devaluation would, at best, take a very long time--and a great deal of immiseration and social disintegration would take place while we waited for this theory to bear fruit. Despite some recent admissions of error along these lines by the IMF, the troika still relies on a theory of how the economy works that badly underestimates the negative effects of austerity.

Suggested Citation

  • Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2013. "Waiting for Export-led Growth: Why the Troika's Greek Strategy Is Failing," Economics One-Pager Archive op_41, Levy Economics Institute.
  • Handle: RePEc:lev:levyop:op_41
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    Cited by:

    1. Walter Paternesi Meloni, 2017. "Austerity & Competitiveness in the Eurozone: a misleading linkage," Departmental Working Papers of Economics - University 'Roma Tre' 0223, Department of Economics - University Roma Tre.
    2. Paternesi Meloni, Walter, 2016. "Austerity and competitiveness in the Eurozone: a misleading linkage," MPRA Paper 75962, University Library of Munich, Germany.

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