George Papandreou, Former Greek Prime Minister, Warns Of 'Vicious Circle' Of Recession

Papandreou Warns Of 'Vicious Circle' Of Austerity And Recession

NEW YORK -- Europe's austerity fever is creating a "vicious circle" of economic pain, former Greek Prime Minister George Papandreou said on Thursday -- though he still wants Greece to stay in the eurozone.

Papandreou, former leader of the socialist PASOK party in Greece, told The Huffington Post that the European Union is being driven by a "dogma" of belt-tightening that he describes as "too mechanistic."

"The European Union is very conservative now," he said, noting that the vast majority of governments in the EU are conservative governments, adhering to what he called a "dogma" of austerity in their approach to solving Europe's sovereign debt crisis.

According to this dogma, he said, "If you put your house in order and you cut your debts and deficits, everything will go fine, the markets will be happy, and so on. But in fact, that’s too mechanistic. It’s creating ... a sort of vicious circle ... of further recession because as you’re cutting, you have less revenue, and you cut more, and there’s slow growth."

Though Papandreou wouldn't go so far as to say he regretted Greece joining the EU in the first place, he said that countries joining the union generally should be better prepared than Greece was when it joined.

He also said he thought the EU should have been created with better tools to handle economic crises. Some of those tools are available now, he noted, including bailout funds like the European Financial Stability Facility. But he said more changes are necessary, including the ability of Europe to borrow collectively in the form of "euro bonds."

Germany, one of those conservative governments Papandreou mentioned, has vehemently opposed issuing euro bonds, while also pushing austerity for Greece and other troubled nations.

Papandreou stepped down as prime minister during last fall's nasty flare-up of the European debt crisis, making way for an unelected national unity government.

Despite his differences with other European governments and the pain austerity has caused and is causing to Greece's economy, Papandreou said it would be even more painful for Greece to leave the euro zone.

"You can't push a button and change currencies," he said. Dropping the euro would lead to a run on Greece's banks and a collapse in foreign investment, he warned, making Greece's position in international markets even worse than it is now.

Papandreou also wanted to talk about "lots of spots of light" in the pitch darkness of the Greek economy, including the reforms Greece has made and Greek entrepreneurs like the makers of Lambda olive oil, sold at Harrods and other luxury outlets as the world's most expensive olive oil.

Correction: Papandreou stepped down as the leader of PASOK last month. An earlier version of this post said that he was still PASOK's leader.

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