Grexit makes a comeback
Greece is back in the news as the IMF, the Germans and the European Commission slug it out pretending to talk tough and propose solutions to the Greek tragedy. There is no solution of course. All the debate about whether the primary surplus target should be 3.5 per cent of GDP (European Commission position) or slightly lower (IMF position) is just venal hot air. Anybody who knows anything and isn’t protecting their past mistakes would assess that a fairly large and sustained fiscal deficit is required in Greece to rebuild some of the lost capacity and to provide an inkling of hope to the youth who are facing a lifetime of diminished prospects as a result of the decisions the adults around them took.
All the talk about ‘deficits mortgaging the grand kids future’ – sick. The austerity has meant the grand kids might not ever emerge given the constrained circumstances their would-be parents will face as they progress through adulthood. The reality remains – firmly – Greece should exit the Eurozone, convert any outstanding liabiliites into a new currency at parity, and stimulate its domestic economy with expansionary fiscal policy. It should continue to impose capital controls. As part of the stimulus, it should introduce an unconditional Job Guarantee at a decent wage to provide a pathway back into employment for the many that the Troika have rendered jobless.
In last year’s – Greece: Staff Concluding Statement of the 2016 Article IV Mission (released September 23, 2016) – the IMF said:
Looking forward, growth prospects remain weak and subject to high downside risks, and unemployment is expected to stay in the double digits until the middle of the century.
Yes, remember that little piece of understatement – the Greek unemployment rate will remain in double figures until at least 2050.
33 years to go.
Some young people in Greece may never have the opportunity to work.
Yesterday (February 7, 2017), the IMF released its so-called – 2017 Article IV Consultation – which is its annual review of the Greek economy, is pretty dire reading. The IMF loves to sugar coat the disasters that it has often been at the centre of creating. We read that Greece’s “economic situation has stabilized since” the last “confidence crisis in mid-2015” – stabilised at the bottom of the depression ocean! Drowning at a stable rate.’
We read that:
In a bizarre twist to the Greek debt crisis, France and Germany are pressing Greece to buy their gunboats and warplanes, even as they urge it to cut public spending and curb its deficit.
I have written in the past about how the Germans had been pushing Leopard tanks and other weapons onto Greece at the same time as claiming the Greeks were lazy and were spending too much.
The Reuters report said:
“No one is saying ‘Buy our warships or we won’t bail you out’, but the clear implication is that they will be more supportive if we do what they want on the armaments front,” said an adviser to Prime Minister George Papandreou, speaking on condition of anonymity because of the diplomatic sensitivity.
Apparently, when the Greek prime minister was negotiating at the time about fiscal austerity, the French we pressuring them to go ahead with billions of euros of military ships and helicopters. They agreed!
Germany has continued to flog submarines to the Greeks and has put those expenditures outside the austerity net in its demands through the Troika.
How far do you think Germany would have got if all the importers stopped buying German products as part of some German-inspired thrift (austerity) measures.
And the assessment that Greece’s fiscal deficit was an imbalance depends on what benchmark one uses. For the IMF and the rest of the Troika, the benchmark is the Stability and Growth Pact, which contains rules that have clearly been demonstrated to provide neither stability nor growth.
- My benchmark is whether the labour market is generating full employment and by that standard the current fiscal situation which the IMF lauds is a massive imbalance – a perversity
- By my benchmark, Greece should be running large primary deficits and the only way they will be able to do that is if they leave the Eurozone.
- The IMF though are obsessed by ‘structural reform’ – aka hacking into health care, education, pension, public employment, wages, job security, and the rest of the programs that define a civilised society.
The IMF wants further fiscal cutbacks, but they admit that:
Cross-country evidence suggests that few countries having managed to maintain such high surpluses for extended periods of time, and even fewer (one in Europe) have done so while also experiencing double digit unemployment rates … [and] … that double-digit unemployment rates are expected to persist for several decades.
The Greek economy might have “stabilised” in the IMF’s assessment but is skating along the bottom having shrunk by 26.3 per cent since the crisis began.
That is, Greece has lost more than a quarter of its production and income generation.
The conduct of Greek fiscal policy, once the crisis hit, was irresponsible and the austerity that was imposed exacerbated the contraction that was led by the collapse of private investment.
Household consumption has fallen by 25 per cent and shows no signs of picking up given the on-going income losses being incurred.
But, business investment is now 74 per cent lower than it was in the March-quarter 2008. That scale of collapse is almost without precedent.
No advanced nation has endured such a massive collapse in productive capacity building.
The IMF, the European Commission and the ECB have conspired to destroy the prosperity of this nation for many decades to come. There should be criminal charges laid.
Once we aggregate official unemployment, underemployment and hidden unemployment we see that there has been no improvement over the last three to four years for workers (all). The broad labour underutilisation is at 29.9 per cent and has been stuck around there since 2012.
A similar situation exists for the youth.
This is the legacy that the current generation is leaving their children and their children.
The lack of jobs, the cutbacks in education and training, the lengthy periods of unemployment, the rising underemployment, the loss of participation, and all the attendent consequences are the legacy.
This is directly the result of the austerity which was imposed in the name of providing a brighter future for young Greeks.
The reality is that their future looks very bleak indeed.
Greece is now a failed state – a colony of Germany and a plaything of the IMF.
If there was any semblance of political courage they would get out of this bind immediately and start building from the ashes.
Life will continue to be tough if they did leave – but improvement would come much more quickly than anything the current policy mix is likely to provide.
And my comments have nothing to do with the question of Greece’s debt burden. Obviously, they will never be able to pay that back in Euros. But debt relief, which the IMF is now trying to use as a means of distancing itself from the German obsession with more Greek punishment, will not help much at all.
What is required is freedom to increase fiscal deficits and start a public sector led recovery. They will never be able to do that while they are within the straitjacket of the Eurozone.
So in a few weeks, the next debt-bailout saga will hit the headlines and the talk will be the same. But I suspect the IMF will not pull the pin and force a Grexit. Mores the pity.
That is enough for today!
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