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

Eurospeak – when words are abused and meanings are distorted

For the past two years, the overwhelming majority of the Greek politicians have been using a list of expressions to describe the Greek debt crisis and to support their proposed solutions, i.e. austerity measures and neoliberal policies in exchange for European bail-outs. The new language “Eurospeak” has been promoted by the Greek media and enjoys the support of European institutions and politicians.

This is a dictionary to help us understand the new language:

Euro

Former meaning: a common currency adopted by European countries first as an accounting currency in 1999, then in physical form in 2002. Its inception can be traced back to other forms of currency cooperation in the 1970s between members of the then European Community. Its rebirth in the beginning of the 1990s was partly triggered by a fear of a strong Germany, which was unified in 1990. The euro was a political project, dressed in economic terms and many economists at the time argued that it may not be a good idea for two reasons: First, because the European economies were too divergent and in different phases in the economic cycle to be synchronized (with the euro, a common monetary policy is to be followed for all countries). Second, because a common European currency cannot be sustained for long if there is not a common fiscal policy to complement the common monetary policy.

New meaning: Financial stability and social justice

(Remaining in the) Eurozone

Old meaning: DATA NOT FOUND

The issue was never examined. When placed on the agenda, it is recommended that a sober discussion take place on the advantages and disadvantages for a country with an unsustainable debt to remain in a currency union. Proposed outline: costs and benefits of devaluation versus remaining in the currency union, including growth path, social and economic benefits, and timeline, terms of bail-out agreements etc.

New meaning: the only option available

Monetary stability

Former meaning: One of the macroeconomic goals for sound economic government in a country/ region. Also known as low inflation, typically between 0-2% and sometimes meaning currency stability as well. Other macroeconomic goals include economic growth (% increase of GDP year after year), employment levels, balance of payments (balancing exports and imports)

New meaning: Full employment

Stability in the banking sector

Former meaning: Banking sector is an industry which among other things mediates for lending and borrowing in the economy, following interest rate setting by a central bank. It is considered to have a pivotal role in an economy as a market for credit, which potentially could drive growth (when economic outlook is positive, banks tend to lend) and as a place for people’s saving. Hence, government provided financial support to banks following the 2008 global financial crisis to have stability in the banking sector. Critics say that the banking sector should be allowed to fail (i.e. go bankrupt) just like companies in other sectors of the economy. More so, since it appears many banks were engaging in “gambling” investments, following a wave of bank deregulation in the early 1990s in the US and Europe.

New meaning: Growth

Austerity measures

Old meaning: Measures usually promoted by the IMF as part of its lending agreement with emphasis on trade liberalization, reducing government budget deficits, reducing wages, keeping inflation low, abolishing minimal wages, privatization, exchange rate fluctuation. Imposed as conditions of the IMF lending agreements to developing countries in the 1970s and 1980s.

New meaning: support and solidarity from European partners to Greece

Economic Crisis

Old meaning: High unemployment, slow economic growth or negative economic growth, lowering standards of living, uncertainty in economic expectations.

New meaning: Opportunity

Decreasing wages

Old meaning: Decreasing wages. At an individual level, it is usually followed with falling disposable income and deterioration in the standard of living. At an aggregate level, it is followed by lower consumer demand in the economy, which leads to lower economic growth or even recession.

New meaning: Flexibility in the labour market

Reducing the national minimum wage

Old meaning: Reducing the national minimum wage which ensures a level of income for the least qualified workers. At an individual level, it is usually followed with falling disposable income and deterioration in the standard of living. As an economic measure, it has the effect of “pulling” wages downwards, thus reducing wages. Then follows lower consumer demand in the economy, which leads to lower economic growth or even recession

New meaning: Flexibility in the labour market

Abolishing collective labour law

Old meaning: Collective labour law – Tripartite relationship between employer, employee and trade union. Among other things, it allowed trade unions to negotiate on behalf of workers for better working conditions, fewer working hours, better wages, increasing their collective bargaining power. It is considered more beneficial to employees as they don’t have to negotiate individual contracts for work. Abolishing collective labour legislation means employers have more bargaining power in imposing their own terms, including unjustified firing.

New meaning: Flexibility in the labour market

 

“Don’t you see that the whole aim of Newspeak is to narrow the range of thought?… Has it ever occurred to your, Winston, that by the year 2050, at the very latest, not a single human being will be alive who could understand such a conversation as we are having now?…The whole climate of thought will be different. In fact, there will be no thought, as we understand it now.Orthodoxy means not thinking—not needing to think. Orthodoxy is unconsciousness.” – Syme

George Orwell, 1984, chapter 5

The social cost of debt repayment

On 21 October, finance ministers gave the green light for the latest payment (€8 billion) of Greece’s first financial package. This last tranche will be signed off by the International Monetary Fund, and the funds would reach Greece my mid-November. The announcement by the finance ministers followed the Greek parliament’s approval of a new package of austerity measures on 20 October. The Greek parliament’s vote took place amidst a two-day general strike in Greece, populous demonstrations and riots. However, this did not stop Greece’s political elite from passing measures, which in effect will deconstruct Greece’s welfare state and weaken its social policies.

Indicatively, the new austerity package measure includes a solidarity levy of between 1% and 5% of income, an increase in the property taxes, an increase in VAT taxes, lowering the tax-free threshold for income tax from €12,000 euros to €5000 euros (the original plan for €8,000 was abandoned), and cuts in the public sector wages by 20% (on tops of the 20% which they experienced last year). Furthermore, there health spending will be cut by €310 million in 2011 and a further €1.81 billion in 2012-2015, and education spending will be cut by closing or merging 1,976 schools. Social security will be cut by €1.09 billion in 2011, €1.28 billion in 2012, €1.03 billion on 2013, €1.01 billion in 2014 and €700 million in 2015. (Austerity plan in full)

Naturally, the government expressed its mere “hopes” to crack down tax evasion, despite the fact that the names of Greek businessmen, contractor companies, top newscasters and pop-singers who have been systematically evading taxes for decades are well-known among government and journalistic circles. Finance Minister Evangelos Venizelos continued its scaremongering rhetoric, describing the government’s choice as between a “difficult situation and a catastrophe”. According to the BBC, he said “We have to explain to all these indignant people who see their lives changing that what the country is experiencing is not the worst stage of the crisis,” he said.

Well, he is right about that. The worst is yet to come. This latest wave of taxes and spending cuts will not only increase unemployment, dampen growth and depress the economy. The measures are purely anti-developmental and will have a direct effect on the social and humanitarian situation in Greece. The government is reducing the number of hospitals from 133 down to 83 and reducing the number of clinical units from 2000 down to 1700, without any serious impact assessment or research. More and more Greeks turn to NGOs for basic medical services. As the Lancet medical study concludes, “the picture of health in Greece is concerning. It reminds us that, in an effort to finance debts, ordinary people are paying the ultimate price”. Unfortunately, it is hard to find any glimpse of hope. The Papandreou government’s priority is primarily the satisfaction of the lenders’ demands, rather the interests of the Greek people.