Archive for July 2012
“We knew at the fund from the very beginning that this program was impossible to be implemented because we didn’t have any — any — successful example. The argument that is used usually by the troika in order to criticize Greece — and to ignore their mistakes — is that the deep recession is because of the non implementation of the structural reforms”.
It is this statement in the New York Times last Tuesday from Panagiotis Roumeliotis, who until last January was Greece’s representative at the IMF, that rekindled the public debate in Greece about those momentous days of spring 2010. Considering the ferocity of the impact that the two ‘bailout’ programs had on the Greek economy and people’s livelihoods, for many in Greece the period between March and May of 2010 is very sensitive and critical. The events that led to the signing of the first Memorandum of Understanding are seen as shaping the country’s future for many years to come. There is a question that remains unanswered in everyone’s mind, could Greece have gotten a better deal?
Even from a Greek perspective, the austerity measures the Spanish government adopted last week were alarming. The cuts to civil servants’ salaries and unemployment benefits, the rises in VAT and the rest triggered the shocking realization that yet another country is about to walk the same treacherous road of abrupt fiscal adjustment that Greece has been stumbling along for the last two-and-a-half years. But it was the sight of riot police clashing with protesting miners and their supporters in Madrid that really drove the chilling reality home. Whereas Greece has been suffering a painful but largely lonely death, Spain seems poised to commit a spectacular mass suicide. The reasons that led the two countries to this point are not exactly the same but it is now clear that the miserable realities they face are absolutely identical.
While Greece’s rotten public finances have pushed its banking system and the country itself to the edge of collapse, it is Spain’s overexposed and undercapitalized financial sector that is threatening to raise public debt to dangerous levels and destabilize the country. Ultimately, taxpayers in both countries are suffering. Spain’s decision to adopt a new round of austerity measures, though, makes it more urgent than ever to answer the question of whether this suffering is part of an effective strategy to exit the crisis.
“The memorandum is not the cause of the crisis; it’s the product of the crisis”. This is not one of the many statements made by Greek finance minister George Papakonstantinou back in May 2010 when the Papandreou government signed the memorandum of understanding between Greece and the troika of lenders. This is a statement from Yiannis Stournaras during his first address in Parliament as the new Greek finance minister.
As the country experiences the most prolonged recession of any developed economy in modern history, Greece’s political establishment spent a good part of the three-day debate ahead of a vote of confidence in the three-way coalition government on Sunday night reviving the discussion held in spring 2010 when Greece entered the bailout mechanism.
During a session whose constitutional purpose is for the government to present its policies and broad roadmap of implementation, and which provides opposition parties with the opportunity to present their views in a constructive debate that will set the tone and the dynamics in the new Parliament, this opportunity was wasted by all in a fruitless and outdated debate. If these are the dynamics in the new Parliament then the signs are worrying.
A rising tide lifts all boats, they say. The changing tide in Europe produced by the eurozone leaders’ decisions in Brussels on Friday could certainly help give Greece, sinking deeper into trouble over the last three years, the buoyancy it has desperately lacked.
Although still far from finalized, the outline deal that emerged somewhere around 4 a.m. in the Belgian capital paves the way for banks in eurozone countries to be recapitalized directly from the European Stability Mechanism (ESM), to which all members contribute money.
If this scheme applies to Greece, there are two key benefits. Firstly, it would reduce the public debt substantially. The current recapitalization of Greek banks involves 48 billion euros being lent to the government via the EFSF and this being distributed to the lenders via a public fund, the HFSF. This means 48 billion euros are being added to the national debt, whereas if the money is lent directly to the banks by the ESM, Greece would avoid this extra burden. Even after the debt restructuring (PSI) in March, Greece is still expected to owe just over 160 percent of its GDP at the end of the year. A direct recapitalization from the ESM would reduce this debt by about 25 percent of GDP. It would also slash the amount Athens pays in interest each year.