Greece: a deal, but…

I’m relieved that a deal has at last been reached – but it comes after weeks of considerable damage to the Greek economy.

I have every sympathy with the Greek people, but no sympathy with the Greek government.

The successive u-turns of the Syriza/far-right coalition have been hugely damaging: they seemingly agreed a package three weeks ago, then suddenly put it to a referendum and recommended people to reject it, then tabled an almost identical package as their new proposal. The whole procedure lost three weeks, during which Greek banks were depleted of their reserves (despite the ECB maintaining its emergency liquidity support). This led to the crucial summer tourist season being wiped out through cancellations by worried tourists.

And all this after six months of chaotic negotiations — during which the Greek economy went from one of the highest growth rates in the eurozone (at the end of last year) to a renewed recession.

But the creditors left themselves vulnerable to accusations of being too tough. Schäuble’s proposal for a temporary Grexit from the euro and transferring Greek assets to a fund based in Luxembourg were a PR disaster, even though the proposal was never taken any further.

The successive bailouts for Greece do not come from the EU budget, but from the IMF and Greece’s fellow eurozone members. It’s understandable that those eurozone members that are poorer than Greece are wary of giving a third bailout to a country where pensions are higher than their average wage.

And all eurozone governments — whether conservative or socialist — were angry with Syriza’s tactics and their claim that austerity was being “imposed” on them. In fact, austerity would have been far worse were it not for the two previous bailouts (the biggest loan of its kind in history, long-term, low-interest) and the debt forgiveness — half of Greece’s debts were written off three years ago! This point has been lost on some British commentators too.

Nor was there much sympathy, at least on the left, for the failure of successive Greek governments to tackle the massive tax evasion and tax avoidance by the rich in Greece. This forced deficit reduction to fall almost entirely on the expenditure side – and, even worse, on social expenditure, with Greece’s massive defence budget protected by its powerful military establishment.

Greece’s deficits, let us not forget, were not part of a Keynesian counter-cyclical policy, nor of borrowing to invest, but of a clientelist political system with handouts to vested interests. It already had an accumulated debt to GDP ratio of over 100% before the economic crisis hit. It had fiddled its national accounts, with the connivance of Goldman Sachs. For all these reasons too, successive Greek governments were not trusted by their partners – hence also the degree of precise detail about what would normally be a matter for the country concerned, in the Greek deal.


Yet despite these strong feelings, a tentative deal has emerged. A failure would have had disastrous consequences for Greece and bad ones for the rest of Europe too.

But it is still vulnerable as it still needs approval.

And it is causing considerable damage to the public perceptions about Europe, as the (false) idea that Greece has been singled out for punitive treatment gains traction — especially on the left.

Hopefully, a deeper debate on the issues and circumstances behind the deal will lead to better understanding of the constraints under which it was reached. All sides have made mistakes, but portraying the Greek government as a valiant victim is just not accurate. The biggest victims are ordinary Greek citizens.

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