New statistics out of Greece show that austerity shrunk the economy more than expected last year. GDP in Greece fell 6.8% in 2011, and a slightly faster 7% in the fourth quarter. The country is in a fifth straight year of recession, approaching a full-on depression.
European leaders are still trying to impose more austerity, but some Eurozone finance ministers may be trying to force a default and exit from the euro.

After all their self-defeating austerity efforts, a few European economic policy makers are noticing that they’re having a problem with growth. The UK and other economies are falling back into recession; Greece is in a depression. But they still haven’t acknowledged they’ve got the solutions backwards.

In anticipation of an imminent Greek default, France and Germany have agreed to a big old-fashioned bank bailout, but so far, the details are secret. Since the two have disagreed on how to structure and allocate the costs of bank bailouts, this could be hopeful sign.

The weekend ended without any dramatic announcement about a multi-trillion euro bailout for the banking sector. But the elements of the bailout are being prepped, even as the Greek people protest depressing austerity.

As we watch the various markets react to recent events, it’s essential we keep our heads straight on some basics, because the media, and particularly the “news” reporters and editors of the New York Times, have got almost everything backwards.

You can ignore almost everything you’re hearing from Washington politicians, including the White House, and Beltway media. Here’s what knowledgeable economists are telling us.

There should be no doubt that one of the most dangerous aspects of this current debt ceiling deal, is that it set a precedent for Republicans turning every future debt ceiling increase in the future into another hostage situation to force spending cuts.

In a statement today, the White House announced that the President would speak at 9pm tonight about “the stalemate in Washington over avoiding default and the best approach to cutting deficits.”

These so-called deficit hawks just couldn’t imagine an agreement without their wise counsel, so they bigfooted into the debate. In the process, they blew up the only two solutions on the table at the time, and added this alternative that produced a panoply of opinions about how to move forward. It gave everyone something to hide behind, so they could say “I support a deficit plan, but they won’t bring the one I like up for a vote.” It’s the first rule of negotiation: you don’t throw in a whole new plan at the end of the process.

The Gang of 6 announces they have reached a deal, and the President is praising it.

It is never a good idea to tell someone “Don’t call my bluff”. It undermines your position. Either you’re ready to win or you’re bluffing, but either way you leave that up to the opponent to figure out. After all if you taunt them, they might just call your bluff from pure spite.