Germans warns Greece: no cuts, no aid

[ChangoLoa]

161. An austerity shock will take growth even deeper into negative figures

Hence even less revenue to pay for their policies. They'll end up with the same deficits and less activity.

At the end, you're losing more on one end what you're gaining on the other. Ideally, if Greece had its own currency, it could ease that fiscal pressure though devaluation. Not in this case though.

What the Greek are asking is for the austerity plan to be applied more smoothly. You cannot ask a country to restructure its economy during a full austerity/ zero growth phase. Restructuring an economy implies credit availability to modernize production schemes/ process, a not sinking internal demand for the producers to find outlets (additional external outlets are simply closed because of the impossibility of devaluation).

As you say, without Greek reform the cycle will simply repeat. But the reform has to be effective. With an excessive shock, the Greek economy will plunge into a low level long run equilibrium... and the reform will reveal itself to be useless since the Greek will still generate insufficient revenue to pay for their policies.