Greek economy mirrors those of Depression-era U.S. and Germany

Greece is spiraling into the kind of decline that the United States and Germany endured during the Great Depression, showing the scale of the challenge involved in attempting to regain competitiveness through austerity.

The economy shrank 18.4 percent in the last four years and the International Monetary Fund forecasts that it will contract 4 percent more in 2013 as Greece struggles to reduce debt in exchange for its $300 billion rescue programs.

That's the biggest cumulative loss of output of a developed-country economy in at least three decades, coming within spitting distance of the 27 percent drop in the U.S. economy between 1929 and 1933, according to the Bureau of Economic Analysis in Washington.

"Austerity has been destroying tax revenue and therefore thwarting the intended effect," said Charles Dumas, chairman of Lombard Street Research, a London-based consulting firm. "There's no avoiding austerity, though, because these people have no borrowing power. The deficits are there."

Greece's restructured bonds have benefitted amid speculation that creditors are poised to release more bailout funds. Greek bonds maturing in 2023, which yielded more than 30 percent at the end of May, now yield about 16.4 percent.

Wage and pension cuts have heightened tensions in Athens and other Greek cities as the economy shrivels and an anti-foreigner party flaunting a swastika-like insignia won 18 seats in Parliament. Polls suggest Golden Dawn is the third-most popular party in Greece, backed by about 14 percent of the electorate. That pits it against Marxist-inspired Syriza, the main opposition grouping, in a standoff recalling that between Nazis and Communists in Weimar Germany.

"The experience of the 1930s says you need to stimulate the economy," said Vassilis Monastiriotis, a senior lecturer in political economy at the London School of Economics. "The rise of the far-right in Greece isn't something ephemeral that will go away when the crisis ends. And it's very dangerous if the rise of the right causes relations with neighbors like Turkey, Macedonia, say, to deteriorate."