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.

oecd-graph

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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10 Comments

  1. I find our reaction sickening. Many within our party seem to want to draw a direct parallel between Greece and the Tories. They want to see it as an evil EU imposing ideological cuts, and a virtuous left wing Greek government being bullied into ignoring the wishes of the people (who were directly asked to vote for or against a tax rise).

    People seem to forget that the Greek crisis isn’t of personal debt, nor have the Greek government ever shown themselves worthy or respect. Greek governments have successively lied about tax revenues, and corruption is rife. Should the long term problems that only surfaced after the 2008 crisis have actually been divulged when they were supposed to be, Greece would not have been allowed to join the Eurozone, or secure certain loans.

    The current government are the ones that closed the banks and imposed withdrawal limits. They are failing to combat corruption. They are failing to combat tax evasion, or cut military spending, or cut grants to vested interests rather than the poor.

    It’s the people whose money is now stuck in failing banks, who cant take their money out we should feel sorry for. The people that have relied on international food aid in the capital of one of Europe’s major capitals. We need to shout at a government that’s failed its people, not foreign nations that offer financial aid on the condition that they don’t need to do so again- even if those conditions aren’t great.

  2. Greek defense spending 2.2%
    UK defense spending 2.1%

    Greece bought submarines from Germany.
    Labour are committed to trident.

  3. I normally read Richard Corbett, whose writing I respect, with great interest. But I fear he is badly wide of the mark in his attack on Syriza. Of course previous Greek governments – both conservative New Democracy – and the social democratic – PASOK – were upto their necks in corrupt clientalism. THESE governments, not Syriza, plotted with the big international banks to lie about the true state of the Greek economy. Syriza is the first government to be elected with a serious comitment to fiscal reform and a tax collecting system which works. But the right wing majority Euro-area governments were not willing to give them the time and support for this to work. There has been much talk of irresponsible borrowing but nothing about “irresponsible lending.” The austerityite fanatics in the German, Finnish and Dutch governments have a great deal to answer for. If they do not succeed in wrecking the Euro – and possibly the European Union – it will not be for lack of trying. Solidarity with Greece – for the sake of Greece and Europe!

    • Well done John Palmer. Richard has betrayed Socialist roots by blaming Syriza for all the ills of previous governments. Who lends money? European, including German banks, and the bail-out will go to paying them back. Who benefited from the previous haircut? Not the Greek citizens. Who bribed the military into massive military spending? Many, including German arms manufacturers. Who benefits from the strong Euro? Mostly the Germans. Merkel and particularly Schauble are villainous. Nothing makes me more anti-European than to see the so-called apostles of European solidarity and union pushing the Greeks into poverty, while they benefit. Richard, produce statistic on poverty in Europe, not just those that support you.

  4. Why would anyone assume that these loans are made with benevolent intention ?

    “As we all know, EU policy towards heavily indebted countries like Greece is one of “extend and pretend” – extending the payback period, but pretending that all debts will eventually be paid. So why is the fiction of repayment so stubborn? It is not just that this fiction makes debt extension more acceptable to German voters; nor is it that the eventual write-off of the Greek debt may trigger similar demands from Portugal, Ireland, and Spain. The true reason is simply that those in power do not really want the debt to be fully repaid. The true goal of lending money to the debtor is not to get the debt reimbursed with a profit, but rather the indefinite continuation of the debt that keeps the debtor in permanent dependency and subordination.”

    http://www.potemkinreview.com/note-syriza.html

  5. “The current government are the ones that closed the banks and imposed withdrawal limits. They are failing to combat corruption. They are failing to combat tax evasion, or cut military spending, or cut grants to vested interests rather than the poor.”

    But enough about New Labour, let’s talk about Greece.

  6. Could you please explain to non experts why an insolvent Euro state disrupts bank withdrawal services? Converting account money to cash does not require fresh money or loans. Why cannot ECB simply convert Euros into Euros? Does the value of our Euros depend on which state is our bank account?

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