For longer than I care to remember, Greece has been struggling economically, largely a crisis of its own making, but tragic nonetheless. A divorce from the Eurozone seems inevitable but both parties are in denial and are not taking sensible steps to make the divorce as painless and orderly as possible, although much pain and some turmoil is probably unavoidable.
Briefly to recap, Greece is in its 5th year of recession, industrial production slumped 7% in the last 12 months, recorded unemployment is 19%; a first rescue package of €110bn was extended in May 2010 with many conditions but has failed to arrest Greece’s decline; a second Eurozone/ ECB/IMF bailout package of €130bn, linked to a private bondholders’ 50% haircut, has been exhaustingly negotiated but its availability is not confirmed. The fact is that the Greek economy is collapsing, projections for recovery by 2020 are fanciful and it has no prospect of repaying its huge debts.
Discussions between Greece and the so-called “Troika” are currently abrasive. Greece reckons it has done all that was asked and is frustrated by new demands from Brussels and the leading paymaster, Berlin. The Troika, hugely exasperated by dealing with Greek politicians, who have prevarication and dishonesty form, want close control of the disbursement of the second package and the detailed implementation of its conditions. It is not satisfied by Greek assurances. The troika has a team in Athens headed by IMF’s energetic Poul Thomsen, a Dane, and the Eurozone has nominated its commissioner to oversee Greek compliance, a mild-appearing German, Horst Reichenbach. Tempers have been raised by caustic comments about Greek good faith made by the German finance minister Wolfgang Schauble, probably a sensible enough person, but looking like an economic Dr Strangelove with his rather snarling manner in his wheel-chair. His comments have provoked a rare rebuke from Greece’s venerable President 82-year old Karolos Papoulias.
As usual the truth lies somewhere in the middle. Surprisingly to many, Greece has over-delivered on austerity. Its primary deficit has been reduced from 10% to 2% so before debt servicing Greece is almost self-sustaining. This has been achieved at great social cost with very high new taxes, especially on immobile property, a poll tax euphemistically called a solidarity tax, rises in VAT, and savage cuts in all government expenditure like education, hospitals and defence. Greece has however failed to push through structural reforms to liberalise business, reform labour laws and remove bureaucratic obstacles to many aspects of life. By their nature some of these will always take longer to implement, but Greece’s public administration is systemically dysfunctional, and there are powerful vested interests in the trades unions and professions opposed to change. Thirdly Greece is lagging behind in its privatisation programme, but frankly the expectations were over-stated and anyhow who would invest in Greece given its current political and currency uncertainty?
The Troika has handled matters in a very cack-handed way. The Eurozone, let alone the EU, is a clumsy institution, divisions are easy to identify and consensus hard to establish. The Mediterranean countries are somewhat sympathetic, if impotent, but the wealthy Northern Europeans are indignant about Greek sins and an AAA bloc of Germany, Austria, Netherlands, Luxembourg and Finland has been formed, determined, it seems, to punish Greece with a Calvinist and Lutheran self-righteousness. The troika’s prescription of ever more austerity is economically illiterate; deflation can only strangle an already feeble economy. If Greece stays in the Eurozone, it needs some kind of new Marshall Plan, but nothing so imaginative has emerged or is likely to emerge from Brussels.
The mood in Athens is darkening. Youth unemployment exceeds 40% and a good riot is an attractive diversion; the government, headed by colourless unelected technocrat Loukas Papademos, has little popular support with its main constituent PASOK only showing 10% approval; the hard Left has about 45% support, much stimulated by the police last week gassing in Syntagma Square iconic leftists composer Mikis Theodorakis and aged Resistance hero Manolis Glezos; the Right is gaining strength but a military coup is unlikely. Greeks are glued to their TVs and radios, avidly following the Lilliputian manoeuvres of their deplorable political elite.
This corrupt, incompetent and overpaid elite has made no sacrifice itself (save the President who yesterday offered to forego his salary) but has instead characteristically swooped like wolves on the poorest and most defenceless. Pensions have been cut by more than 20% and support withdrawn from council house tenants and the disabled while children shiver in unheated schools. I have myself seen able-bodied Greeks scouring dustbins; well-dressed unemployed people queue for food at soup kitchens and sleep rough. Weeping fellow-Hellene Cypriots send blankets and coats for the poor in Athens. As if deliberately to light a fuse, the troika now want EU administrators in all departments (naked colonialism), all political parties, including the opposition, to sign up to their bail-out terms (some hope!) and insist that Greece indefinitely postpones its very necessary elections (so much for democracy). Its demands are probably unconstitutional and illegal.
Unsurprisingly populism abounds with raw hatred of the Eurozone vocally expressed, Nazi memories rekindled (“at least we did not make soap from the flesh of Jews” a TV commentator said last night in response to a German insult) and wartime reparations demanded. The Dutch (“notorious drug traffickers”) and the Finns ("who are they?”) are routinely abused. The Eurozone is seen as only wanting to protect its pet euro-project and its bloated banks. None of this is very helpful, even if there are grains of truth embedded.
Greece needs to reject the second bail-out; announce a debt default; re-introduce a devalued drachma; hold elections and find totally new leaders. The country would have a chance to become competitive, whether inside or outside the EU, and run itself in its own way. The political elite will resist, fearing for their jobs and their necks, but they have lost the people and the current nightmare must end. I do not believe the consequences for the eurozone would be as drastic as some fear. In any event, let the Devil take the hindmost.
SMD
18.02.12
Copyright Sidney Donald 2012
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