Rival economic theories torpedo Greek negotiations

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http://www.dw.com/en/rival-economic-theories-torpedo-greek-negotiations/a-18560684

Greece's new government has been negotiating with its IMF and European creditors for five months - fruitlessly. The problem, say economists, is that the two sides' proposals are based on incompatible economic theories.

Rival economic theories torpedo Greek negotiations
Nils Zimmermann
03.07.2015

In the confrontation between Greece and its creditors, there's another conflict running in the background - a clash between two schools of economic thought: post-Keynesian economics and neoclassical economics.

Syriza's policy-makers are a mix of post-Keynesians and moderate Marxists, whereas the Eurogroup finance ministers - Greece's main creditors - are steeped in neoclassical economic theory.

The two theories prescribe diametrically opposite policies: post-Keynesians, whose theories build on the foundations laid in the 1930s by the famed British economist John Maynard Keynes, say the solution to recessions and depressions is for governments to stimulate demand by increasing spending and - in some cases - decreasing taxes.

Neoclassical economists, by contrast, say the way forward for Greece is to improve international competitiveness and investor confidence by reducing unit wage costs and cutting back public spending.