IMF’s “mea culpa”

Last week, the IMF admitted it had been wrong in its predictions about the consequences austerity would cause to Greece and that some of the reforms imposed as part of the loan agreement had been too harsh. (See for instance p.6 of this IMF paper, where the IMF reports mentions that “the macroeconomic assumptions at the initiation of the program proved optimistic” as well as this IMF paper)

So, let’s recap on what has happened in Greece in the past 4 years.

• Greece is now in its 6^th year of recession.
• GDP has contracted 22% between 2008-2012, one of the deepest peacetime recessions in industrialised economies

 

 

 

• Unemployment is now at 28%

 

 

 

• Youth unemployment is over 60%
• Greece’s debt to GDP was 129% at the end of 2009 and prior to the IMF loan agreement. At the end of 2012, it stood at 157%. The aim is to bring it down to 124% by 2020

  

• Homelessness has sharply increased. Partly due to the important role family plays in Greece, Athens was unlike other European capitals where homelessness is visible in the streets. In 2009, Athens had about 2,000-3,000 homeless people. In 2012 the number was 40,000 (for more info, see this article).
• National minimum wage has been decreased by 22% and 32% for the young. It was reduced from €780 gross a month at 25% and 32% as of 1.1.2012. It went down to €586 gross and €511 for workers 15-25 years old, irrespectively of education and skills.
• Pensions of public servants have been slashed by 40%.
• Increase of suicides. Until 2008 Greece had one of the lowest suicide rates in the world, with 2.8 suicides per 100 000 inhabitants. Statistics released in 2011 by the Greek ministry of health show a 40% rise in death by suicide between January-May compared to the same period in 2010 (for more info see this EP discussion and this article).
• The national health budget has been cut by 40% since 2008. As of January 2014, hospitals will also collect a fee of 25€ for each inpatient care, for services which were previously provided for free (see Ministry of Health’s presentation for more)
• Expenditure for mental health has been cut by 50%. As of December 2012, employees in the mental health sector had not been paid for 6 months.
• Increase in HIV/Aids; The incidence of HIV/Aids among intravenous drug users in central Athens soared by 1,250% in the first 10 months of 2011 compared with the same period the previous year, according to the head of Médecins sans Frontières Greece
• Rise of malaria: Malaria is becoming endemic in the south for the first time since the rule of the colonels, which ended in the 1970s, after mosquito-spraying programs were slashed in southern Greece
• Infant mortality has risen by 40%.
• Hospitals are forced to cancel operations (for more, watch this short film by Aris Chatzistefanou)

The above provide a snapshot of the situation in Greece, not to mention the rise of the neo-nazi Golden Dawn party, which has entered the Greek parliament and attacks and stabs immigrants, with the cooperation of the Hellenic police (see more here  and here).

I guess it’s ok, since the IMF said they are sorry about the mess, as they had to prevent contagion of the Greek sovereign debt crisis to the rest of the Eurozone. Although it was clear from the beginning that the IMF’s technocratic approach was indifferent to any social cost, it’s ok, they are having second thoughts, even now.

Of course, the Greek government at the time could have resisted signing the loan agreement proposed by the IMF and the EU. There are many Greek technocrats, university professors, economists and experts around the world, which could have been brought forward to make a counter-proposal [and they did, see for instance here, but they were dismissed without second thought]. The Greek government could then have negotiated a different solution which would have been less painful to the Greek people and society. And how knows, maybe that solution would have included a fairer allocation of the costs of lending to high-risk Greece, rather than blame it all on the “lazy Greeks that don’t pay taxes and retire at 50”.

But fortunately for foreign institutions like the IMF and governments, they have always found eager collaborators among the Greek elite, who have been more than willing to disregard the country’s and its peoples’ interest in favour of a “good boy” pat and a cookie from Europe and other foreign “partners”.

Catastroika made in Greece

According to Greek Finance Minister Yannis Stournaras, the Greek government will pursue an aggressive plan of privatisation, in an effort to satisfy international lenders, the European Commission- ECB – IMF troika. Privatisations have always been part of any IMF lending agreement in the world, as have trade liberalisation, reducing the budget deficit and the public sector and generally following a neo-liberal economic agenda (see here).

The rationale behind the IMF’s SAP (Structural Adjustment Programs) have been toe reduce the state in order to “unleash” the private sector to create growth, but in reality to allow – primarily the US and Western – multinationals to enter the developing countries’ markets on a privileged basis.

For Greece, Stournaras’ list of companies to be privatised the former Airport at Hellenikon, the Public Gas Corporation (DEPA), the National Gas Transmission System, the Greek Petroleum (ELPA), the General Mining & Metallurgical Company (LARKO), the Greek Organization of Football Prognostics (OPAP), airports, ports, marines and the Greek National Railway (OSE) and many other assets.

It is a no-brainer that since Greece is essentially a bankrupt country in all but paper, the Greek assets will be sold at bargain prices. But even so, for anyone who still doubts how privatisation harms citizens, both as consumers and as taxpayers, there is the Catastroika documentary to watch.

http://www.catastroika.com/indexen.php

Europe’s fiscal compact: A political economic perspective

Over the past, there has been a proliferation of analyses, reports, commentaries on the Eurozone sovereign debt crisis, its causes, the economic and political situations in Greece, Italy, Spain, Portugal, on the handling by European leaders, on the structural and other issues of the European Monetary Union (EMU).

Some commentators focus on Greece and its high sovereign debt levels. Some, usually at the more sophisticated end of the spectrum, provide an analytical approach to identify the causes of the Greek debt: 1. the low interest rates available to the Greek government, as a result of EMU, which led to an increase in government borrowing 2. the increase in Greek imports (from Germany and the European north) which led to a current account deficit, translated into debt accumulation and, of course, 3. corruption. Others analysts of course, at the less sophisticated end of the spectrum, indulge in the bashing of the “profligate” Greeks, who did not respect the Maastricht rules, “spend more than their means allow them” (colloquialism for borrowing), work 5 hours a week and have taken the term “tax evasion” to a whole different level. Of course, the Maastricht rules were first broken by none other than France and Germany back in 2005 and the shift towards spending-by-borrowing (rather than by reducing your savings) is a universal one, but these are different issues.

Other analysts look at the Eurozone as a whole and point to its well-known deficiencies and often startle at its problems: For example, that the Eurozone has a currency but not a government (really? Wasn’t this in the Maastricht Treaty of 1992?), or that the European Central Bank (ECB) only focuses on low inflation rather than high employment and growth (again, really? Wasn’t the ECB modelled after Deutchebank, inheriting its anti-inflationary obsession?) Others stress the centrifugal powers within Europe, which will lead to the break-up of the Eurozone, as Brussels interferes more and more in nation-states’ politics,economics and societies. Although an increasing transfer of powers from the national to the European level is taking place with questionable methods (see rule by bankers in Italy and Greece), the break-up of the Eurozone seems to echo less the reality and more Conservative British wishful thinking.

What is often downplayed, is a more political reading of the Eurozone debt crisis. The Eurozone debt crisis debate has been framed in terms of “more or less growth”, or “Europe versus national economies”. However, the developments in the Eurozone over the past two years are more political than ever.So, let’s clarify a few things:

First, to go back a year, the Greek austerity measures, all-too-easily accepted by the Greek political elite, are well-known for their neoliberal character among development economists. Similar IMF-backed Structural Adjustment Policies, as the ones being implemented in Greece at the moment, have taken place in developing countries since the 1980s and failed to create growth and employment. It should not come as a surprise to the Greek media and political elite that increasing taxes and reducing deficits threw the Greek economy into depression, more so as the Greek government could not devaluate its currency.  This is another well-known fact among economists, and even the World Bank allowed for more social spending in the programmes it proposed to developing after the end of the 1990s.

Second, economic growth can be stimulated in a variety of ways. One of those is to reduce deficits and debt, reduce the role of the state, privatize, open the economy to trade and foreign direct investment, and facilitate the private sector domestically. Another way to stimulate growth is by increasing investment made by the public sector. In theory, were the IMF a different institution, it could very well bail-out Greece not on the condition that the role of the state in the economy is reduced through tax increases and public spending reduction, but provided the government invested in the economy, and, for example rebuilt its industrial base.

Third, fiscal stability is a fine and noble goal. The whole idea is that a government’s revenues must more or less match its expenses, because if it borrows excessively, it mortgages the country’s future, as these debts have to be repaid. However, among other things, one of the reasons why a government may borrow in the first place is to stimulate the economy by public spending in the case of a recession. Put differently, the government could (and should) borrow to implement an expansionary policy when the private sector is not confident enough to invest, as is the case presently in Europe and the US.

It is in this light that last week’s “fiscal compact” should be read. The rule (government deficits not to exceed 3%) exists since the Treaty of Maastricht (1992). However, the idea back then was all about making European economies converge ahead of the adoption of the common currency. This time, the rule will be stricter and harder and presumably incorporated in constitutions or legal texts of similar legal force. While this will essentially render counter-cyclical economic policy at the national level illegal, the European Union has yet to provide an equivalent mechanism at the European level. The Brits may have stayed out of  Europe’s deal to protect the interests of their City, but in effect they retained the one of the most powerful government policy tools.

There are many who like to present austerity and fiscal stability as simple economic rules, in the far-far-away land of technocratic, depoliticized issues. This is not about economics. This is about good, old traditional left-right politics. And up to now, the Right is winning.