Wynne Godley was right

July 7, 2016

In 1992 the great British economist Wynne Godley who died in 2010 (his Guardian obituary written by William Keegan is here) wrote a short article in the London Review of Books entitled “Maastricht and All That”. The article is an astonishingly prescient critique of the deep design flaws in the plans for European Monetary Union as contained in the Maastricht Treaty. In it Godley says this:

“What happens if a whole country – a potential ‘region’ in a fully integrated community – suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfil a redistributive role.

If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation.”

There has been some trumpeting recently of ‘good news’coming out of Greece. Greece’s seasonally adjusted unemployment rate fell for the third straight month in April, when it declined to 23.3 percent from a downward revised 23.7 percent in March, Hellenic Statistical Authority (ELSTAT) labour force survey showed on Thursday. The April headline figure is the lowest jobless reading since March 2012.

Does this mean the Troika program is working?

In absolute terms, the number of employed and unemployed reached 3.68 and 1.12 million. If there were an equivalent rate of unemployment in the UK it would mean 6.5 million people out of work. Most of the unemployed in Greece are no longer eligible for welfare payments under the new Troika imposed ‘reforms’.

The jobless rate among men posted the most marked decline by almost 3 pp from last year to 19.3 percent, while the respective rate for women edged down at a much slower pace to 28.2 percent.

The breakdown by age displayed notable drops of 3.5-4 pp in the jobless rate in the 25-34 years old group but that still means youth unemployment is running at the awful rate of 47.4 percent and in the succeeding group of 25-35 years old the unemployment rate is 29.4 percent. In contrast, the unemployment rate in the 55-64 years old group, which has been lower than in the younger groups during the crisis, deteriorated by more than 2 pp to 19.3 percent.

Over 427,000 Greeks aged 15 to 65 have emigrated since the start of the Greek crisis in 2008, with the annual exodus trebling to 100,000 in 2013 alone.

Unlike Greek emigrants in the last century, who were labourers and industrial workers, those leaving Greece in recent times tend to be young professionals, with over half of those who left in 2013 in the 25–39 age group. The new wave of Greek emigrants are mainly educated young people with professional experience, with Germany, the UK and the United Arab Emirates being the most common destinations.

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