Home > The Economics Profession > Reinhart & Rogoff finally get it right!

Reinhart & Rogoff finally get it right!

from Lars Syll

Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging-market counterparts. The current phase of the official policy approach is predicated on the assumption that growth, financial stability, and debt sustainability can be achieved through a mix of austerity and forbearance (and some reform).a62edf0f39de560a219b7262163b0d45 The claim is that advanced countries do not need to resort to the more eclectic policies of emerging markets, including debt restructurings and conversions, higher inflation, capital controls, and other forms of financial repression. Now entering the sixth or seventh year (depending on the country) of crisis, output remains well below its pre-crisis peak in ten of the twelve crisis countries. The gap with potential output is even greater. Delays in accepting that desperate times call for desperate measures keeps raising the odds that, as documented here, this crisis may in the end surpass in severity the depression of the 1930s in a large number of countries.

Carmen Reinhart & Kenneth Rogoff

This time it seems as though it is — really — different. At last the light at the end of the austerity tunnel seeps through.

  1. Merijn Knibbe
    March 12, 2015 at 9:45 am

    But at the same time (today) there is supposedly a conference at the ECB about more ELA (Emergency Liquidity Assitance) for the Greek banks. I expect that the ECB will provide this kind of, at this moment, badly needed and highly effective helicopter money. A desperate measure: indeed.

    But it’s a desperate time, too. Despite this, it can’t, however, be excluded that they will kill off the Greek banks in ‘Cyprus style’, which will lead to an immediate hit to the economy and therewith a default of the Greek government.

    Mind that, when it comes to ‘reforms’, Greece has introduced by far the most far reaching measures of the entire Eurozone (wage cuts, cuts to the government budget, changes to labor market rules, bank aid etc.). The rhetoric that Greece has to deliver can therewith be dismissed: it did. Now, it’s time for the ECB to deliver and to live up to its true mandate: monetary and financial stability.

    • Merijn Knibbe
      March 12, 2015 at 12:26 pm

      Update CET 13:25: rumour has it the ECB provides ELA.

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