Skip to footer

Argentina doesn't apply to Greece

Argentina's price inflation and devaluation from a decade ago has nothing to do with the current economic woes of Greece.

|
Petros Giannakouris/AP
A protester waves a Greek flag in front of the parliament during a protest in Athens. Karlsson argues that just because Argentina recovered after its currency devaluation doesn't mean the same will happen for Greece.

The Economist is now removing Argentina's consumer price inflation number from its list of economic indicators because it is so obviously false that the official numbers are of no use, comparable to past budget data from Greece. That seems like the right thing to do, though The Economist seems to have missed that the manipulation of inflation data has implications not just for the inflation numbers themselves, but also for real growth numbers. Since real growth is a function of nominal growth corrected by price inflation, an underestimation of price inflation implies an overestimation of real growth.

Which brings us to Roger Bootle's telegraph column where he repeats the myth that because Argentina boomed after devaluation so would Greece.

In my view, the greatest threat to the euro is that Greece will make a success of default and devaluation. Something like it has happened several times before, notably with Argentina in 2002, when it defaulted and devalued. The country went from an appalling financial crisis to growing by 11pc in the space of 18 months.

Suppose that once the new drachma has fallen by 30pc to 50pc, Greece begins to show signs of growth. How would it then be possible to persuade the electorate of Spain, Portugal, Italy, and even Ireland, that there is no alternative to years of misery?

Well, obviously, if Greece becomes a success after devaluation while Spain, Portugal, Italy and Ireland don't while remaining in the euro, then devaluation will look appealing. But there is no reason to believe that will happen. Britain's and Iceland's economies, for example, have remained weak years after their dramatic devaluations.

Argentina is a misleading example because first of all, as pointed out above, its dramatic underestimation of inflation means that real growth has been far lower than the official numbers indicate. And secondly, to the extent the boom has been real it was as I pointed out in a previous post due to the fact that the prices of Argentina's export commodities coincidentally sky-rocketed in the years after its devaluation.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Argentina doesn't apply to Greece
Read this article in
https://www.csmonitor.com/Business/Stefan-Karlsson/2012/0228/Argentina-doesn-t-apply-to-Greece
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe