very good at analysing the politics of
austerity for Greece, and the flaws in
its application.
As this guy sees it, these flaws will mean
the end of the Troika's plans.
He shows how the Troika is acting on
behalf of the banks, and on behalf of
German military contractors and Merkel.
The ballooning military spending was one
clue that politicians were being paid off for
arms that Greece cannot afford and cannot
use. Submarines for example. It shows how
this is still going on now, even with austerity.
And Merkeel feigns innocence, like
"I didn't know Greece was spending so much
money. Schade"
His methodical style is also
very reassuring. He is academically
slicing the Troika and Greek politicians
into tiny pieces.
Let's see what happens next.
checkit: Mainly
macro
Greece
and denying responsibility
My
earlier post making some parallels between attitudes to Greece and attitudes
during the Irish potato famine of the 1840s was picked up by others in Ireland
and Greece, and has drawn some interesting reactions. Thankfully most
understood that, as I wrote: “Of course the Irish famine is different in degree
and form to the difficulties being faced by many in some Eurozone economies.”
So why did I still want to make the comparison? The trigger was the denial of responsibility highlighted by the Lancet
study I referred to, and the common alternative view that all problems were
down to a corrupt or inefficient Greek
government and economy.
I
wanted to make the parallel with the Irish famine for three reasons. First,
there seemed to be the same type of deflection
of blame going on today as at that time. Second, ideas about what could and couldn’t be done in terms of
economic relationships were central. Third, the verdict of history is pretty clear with the Irish famine. The British government did provide some famine
relief, but what history remembers is that it was not nearly enough.
History remembers the action and inaction of the British government, and not
the inefficiencies and inadequacies of Irish agriculture.
One
response to my criticisms is that without Troika
or IMF support, austerity would have been much more immediate and intense.
This is of course true: unable to borrow at all, the Greek government’s primary
deficit would have had to fall to zero even if all interest payments on debt
had been halted. But as I noted above, the headline from history is not that
the famine would have been worse still if the British government had not
provided any relief, but rather that it did not provide enough.
Troika
assistance to Greece made two major
mistakes. First, wishful (at best) thinking about the amount of government debt Greece could support. Second, the
Troika imposed a front loaded austerity programme that was far too severe. How
much of the subsequent collapse of the economy was due to this is unclear, but
few seriously doubt it played a major role. As I noted here, the estimates by
the Troika of the impact of austerity that were made at the time ignored basic
and widely accepted macroeconomic analysis.
Mistakes
get made, particularly in a crisis. When
these mistakes become evident, as they did pretty quickly in the case of
Greece, there are two possible responses. The first is for those who made
these mistakes to admit responsibility,
and try and learn the lessons. I
think the IMF has to some extent tried to do this, as I noted in this earlier
post. The second possible reaction is denial,
and to seek to blame others. It is this response
that history does not look too kindly upon.
Denial
takes many forms. There are many myths. One of the most invidious is that the
failure of Greek debt to stabilise is because the Greek government failed to undertake the required austerity. This
is simply not true, as this
excellent study of all the assistance programmes to Eurozone countries by
Pisani-Ferry, Sapir and Wolff documents. (See also the numbers I presented in
this post.) The austerity programme was always far too severe, and became more so over time.
Another
myth is that workers refused to cut
wages, thus preventing the necessary adjustment in competitiveness. To
quote the Pisani-Ferry et al study: “It is only
for wage-based competitiveness indicators such as unit labour costs that the improvement is noticeable. Thanks
mostly to downward wage adjustment, ULCs started to decline already in 2010 and
the trend accelerated strongly in 2011-12.” So the image of the stubborn Greek worker refusing to face reality is
incorrect.
There
is also a denial of the extent to which the Troika promoted its self interest, rather than doing what was good
for the Greek people. No doubt part of the failure to recognise the necessary debt write off was
wishful thinking, but it is difficult to believe that it had nothing to do with
who held that debt. As this Breugel
study shows, the term ‘privatisation’
appears ten times more often in Commission programme documents than the word ‘poverty’. When it became possible that
Greece might elect a government headed by Syriza,
Greece was threatened with exit from the Eurozone not
because the Troika believed this prospective government might do more harm to
the Greek economy, but because they threatened
to suspend interest payments.
A
good example of this self interest is
defense spending, and German built submarines in particular. Greek defense spending is well above the
Eurozone average. An obvious initial austerity measure would have been
a complete suspension of Greek spending
on overseas produced military hardware. This is one example where austerity could actually be expansionary:
Greece benefits from the reduced tax burden, but the demand impact is felt
entirely overseas. Any fears about Turkey could have been covered by assurances
from other governments. Indeed, given the alternatives, it seems criminal not to have made this a condition of Troika support.
But of course this would be to ignore
where this hardware was built - mainly in Germany and other Eurozone
economies.
As
Merkel is reported as saying: “But we
never asked you to spend so much of your GDP on defence”. Yet the Troika has not been afraid to ask for many
things. One of the myths is that Troika loans have not involved much
conditionality - as Pisani-Ferry et al note, “the Troika has immersed itself more and more in the sector-speciļ¬c
regulation of microeconomic behaviour.” The extent of corruption in the procurement of Greek
military hardware is immense, but the bribes have been paid by companies in
other Eurozone countries, particularly Germany.
It
is clearly nonsense to argue that the damage done to the economy and health of
the Greek people is all down to corruption and inefficiency within Greece and
nothing to do with Troika actions. Denial of responsibility is particularly
dangerous if it means not admitting your mistakes but instead repeating them. The tragedy of the Greek political class
is not that they failed to enact Troika policies, but that acquiesced to them.
The one ray of hope is that now the Greek government is no longer running a
primary deficit, so it potentially has much stronger negotiating power. I only
hope they use it.
