The crisis: an “enormous” structural reform opportunity

From people close to Greece and Spain in particular the sentiment is strongly expressed that the crisis today presents an “enormous opportunity” finally to push through reforms which have been long promised but undelivered, because of the usual near-term pain and opposition. We are talking about ‘structural reforms’, with labour-market reform at the top. An expert on Greece (and in Greece) is breathless at the possibilities. I want to add a caveat. These reforms need to happen in a growing economy. Otherwise a ‘flexible’ labour market flexibly sheds labour.

Where is growth to come from? The EU’s answer is ‘nowhere’. Have a look at the IMF programme (pdf) and judge for yourself. Yes, it projects real growth beginning in 2012 (1.1%). The point is to examine the logic of where this growth is supposed to come from. No less than 11% of GDP will be clipped from government expenditure (net, cumulative) in 2010-2013. Debt/GDP is forecast to reach 150% in 2013, and 120% in 2020.

There is another way.

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