Not working out so well:
With thousands of police reinforcements on duty to shield her from rowdy protesters who see her as the archvillain of the euro crisis and their national pain, Chancellor Angela Merkel of Germany was greeted by the Greek prime minister as “a friend of Greece” and tried to reassure the Greek people that she was here not “as a teacher, to give grades” but rather as “a real partner.”
Unpersuaded, furious Greeks held rallies and protests that included a job walkout by civil servants, including teachers and doctors. Some banners at the rallies read “Don’t Cry for Us Mrs. Merkel,” and “Merkel You Are Not Welcome Here.” A small group of protesters burned a flag bearing the symbol of the Nazi swastika while four protesters dressed in Nazi-style uniforms drew cheers of approval as they rode a small jeep past a police cordon.
Ms. Merkel’s visit stands as the high point thus far of her recent efforts to show a renewed dedication to European solidarity after years of harsh words and increasingly strained relations within the European Union. But it coincides with a report from the International Monetary Fund that underscores the challenges that lie ahea.
Greece would miss its five-year target for debt reduction, the report said, with total indebtedness falling only to 152.8 percent of gross domestic product in 2017, against the goal of 137.3 percent, according to The Associated Press. Moreover, Greece is not expected to begin generating surpluses to begin paring the debt until 2016, two years later than hoped.
At a joint news conference with Prime Minister Antonis Samaras, Ms. Merkel said Greece must make good on its commitments to creditors but acknowledged the suffering that the Greek people had endured as the government forced through deep spending cuts in the midst of a recession that has lasted for years. But she said the country was headed in the right direction. “I am convinced that the path, which is a difficult path, will lead to success,” Ms. Merkel said.
Suffer, little children, and all will be well. Meanwhile:
But I did want to weigh in on the just-released first chapter of the new IMF World Economic Outlook (pdf), which contains among things a meditation on multipliers. Basically, the Fund looks at the severity of the downturns in countries practicing severe fiscal austerity and says, gee, maybe fiscal policy has a big impact after all.
OK, I’m being a bit unfair. Olivier Blanchard, the chief economist of the Fund, who co-wrote the relevant box, has always been of the view that fiscal policy has serious impacts. But there was a widespread determination in the immediate aftermath of the financial crisis to dismiss the notion that in a liquidity trap there are large impact of fiscal policy, positive or negative. Those of us who argued that we were now in a very Keynesian world were definitely marginalized in practical policy debates.
But we were right — a fact demonstrated not so much by stimulus as by anti-stimulus, which has had all the negative effects traditional Keynesian macro said it would.
Unfortunately, a large part of the political spectrum remains determined not to learn that lesson