Saturday, 18 July 2015

Greek Bailout: It's Going to Fail

Germany has approved of the latest Greek bailout terms, which would mean that Greece would be handed over £ 60 billion (86 billion euros). This means that Greece would be able to pay two of the creditors: the IMF and the ECB.
Should we celebrate? Certainly not. Should we heave a sigh of relief? I don’t think so.

The firebrand Greek Prime-minister, the forty year old Alexis Tsipras, the leader of Greece’s Left Wing party, Syriza, after holding a defiant referendum a couple of weeks ago, in which the Greek public overwhelmingly and decisively rejected the original terms and conditions of the bail out, described to them as humiliating (by Tsipras himself), essentially, capitulated and, after his victory in the referendum—if it can be called that—accepted terms and conditions that were, in many ways, more stringent and humiliating than the original ones. Tsipras came to power in Greece earlier in the year on the wave of anti-austerity feelings in Greece, which has seen her economy shrunk by 25% since the financial crisis. He tried to justify his capitulation by declaring, during the debate in the Greek parliament—which he won comfortably enough despite a significant rebellion by MPs of his own party, including the speaker, one  Zoe Constantopolou, who looked every bit as fearsome as the fearsome speech she delivered, in which she declared the day as the black day for democracy in Europe—by mouthing sentiments such as “It is better to fight an unfair battle than handing in weapons”, and that he had to make a choice between economic hardship and chaotic default.

Quite what weapons Greece currently has which Tsipras is loath to hand over to the enemy (Germany) is difficult to see. Also, he must have known the stark choices he faced even before the referendum. What purpose did the referendum serve, then? As has become clear, it did not serve any purpose. Tsipras was probably hoping (against hope) that a strong No vote by the Greek public would give him negotiating muscles in the bailout talks. That did not happen. The Germans are renowned for many things, but intellectual flexibility is probably not one of them. When Tsipras returned to Brussels, he was told—as he must have feared he would be, notwithstanding his public posturing—that there would be no let up. If he did not want to accept the conditions laid down by the Germans he should close the door on his way out.

So what exactly is the deal? This is the third international bailout Greece has received since the travails of that country began five years ago. This time round Greece will receive a total of 86 billion euros. What are the conditions? The conditions are very harsh, some might say punitive, notwithstanding the extension offered to the maturity of the debt by the debt by the EU. VAT discount will be abolished on the islands (which depend on the tourism for subsistence). There will be more VAT changes. Corporation tax will be increased, as would be the tax on ‘luxury items’. The pensions for the elderly (who have already seen a drop of more than 30%) will dwindle further. (And—shock! Horror!—the public sector workers cannot retire early and will have to work till 67, like they do in Germany.)

There should, however, be no doubt as to who is going to suffer the most by the latest wave of austerity measures launched by Germany: the poor. Public services will be severely affected.

Five years into the crisis there seems no end to the miseries of the ordinary Greeks.

As the IMF has (finally) said, the sheer enormity of Greek debt is such that it has now reached unsustainable levels. The IMF also said that the forecasts for the growth rate of Greece were unrealistic.

I read a few articles in newspapers that described how Greece, for all practical purposes, will become a protectorate of Germany, with little to no economic freedom, little control over its fiscal policies, and having to sell its public assets to pay her creditors. That is obviously a hyperbole, but at the core of every hyperbole is a kernel of truth.

It also raises the wholly legitimate question whether the latest austerity measures are going to do any good. They most probably won’t; they would make things considerably worse. There is every possibility that the continued austerity will only bring further depression, and the inevitable rise of the right-wing xenophobic element.

The Germans would do well to look into the past of their country, in particular what happened between the two World Wars, and the consequences of the victors imposing draconian measures on Germany after that country’s defeat in the First World War. In contrast, the treatment of Germany (OK, West Germany, as it was then), initiated by the Americans under the Marshall Plan, was very different, and yielded a very different outcome.

The terrible (and unnecessary) pain imposed on the Greek people is very difficult to understand (or even justify) in purely economic terms. They will not help the ordinary Greeks or the Greek economy, and, if the Germans think that they are going to get the money back any time soon—if at all—they are deluding themselves. It is highly likely that the Greek economy is not going to be robust enough for decades, at least, to pay the interests on the debts/loan, leave alone the loan. Greece has become an economic basket case. The Germans might as well flush the money down the toilet. (I suspect the austerity measures imposed on the Greeks serve no purpose other than quelling the Revanchist fury in ordinary Germans who are furious at the Greeks for what they (the Germans) no doubt see as their refusal to fess up. The Greeks are stereotyped as lazy, corrupt, dishonest people who don’t pay taxes, don’t want to work hard, don’t want to make any changes to their bloated and unsustainable public sector (as no doubt the Germans view it), and want to live in a Socialist utopia which is bankrolled by someone else (Germany). Does anyone notice similarities, here, with Scotland?)). Even if you subscribe to this stereotype, it beggars belief to assume that the Germans (that is the German politicians) were unaware of this when they allowed Greece to join the single currency in 2001, or whenever it was. The truth is Germany allowed Greece to join single currency, as if they were buying a cheap company (who would buy German goods). Or maybe, the German politicians fear that if they gave Greece an easy ride, other countries like Spain and Italy would demand similar treatment.

It is difficult to see how the unhappy union can last. It cannot last. And when it will eventually melt down—it’s only a matter of time—most people would think that it was a flawed concept to begin with. It was ludicrous to expect that different countries with very distinct national identities and vastly different economies would be able to work together under a single currency.