Reports from the Economic Front

a blog by Marty Hart-Landsberg

Greece Versus The Troika

The Greek drama continues to play out.  Greece is supposed to make a 1.6 billion euro loan payment to the IMF by June 30.  The Syriza-led government says unless the Troika—The European Commission, European Central Bank, and International Monetary Fund (IMF)—releases the 7.2 billion euros authorized as part of the 2012 Greek bailout agreement it won’t have enough money to pay the IMF.  And it also won’t be able to make a July loan payment to the European Central Bank.

The Troika is adamant that the money will only be transferred to the Greek government if Syriza agrees to abide by the terms set by the past bailout, which was itself an extension of a 2010 bailout.  Those terms include further rounds of austerity, privatization, and labor market liberalization.  But that is the problem.  As the Levy Institute explains, these bailout terms are largely responsible for years of economic crisis (see Figures 1 and 2):

Estimates of real output for the Greek economy, published by the Hellenic Statistical Authority (ElStat), showed some signs of recovery up to 2014Q3, after six long years of uninterrupted fall in output, even though the fourth quarter of 2014 and preliminary estimates for the first quarter of this year show a reversal that, if it continues in the second quarter, will indicate the economy has slipped back into recession. Real output, at the end of 2014, was below its 2000 level, marking a more than 26 percent drop from its peak in 2007, while an even larger fall—30 percent—in employment has been recorded. More than one million workers have lost their jobs relative to the previous peak in 2008, with an increase of 800,000 unemployed—the total now stands above 1.2 million—while the active population is shrinking, as workers leave the country in search of better opportunities abroad.

Capture (1)

The Los Angeles Times provides a more ground level view of the devastation:

Estimates vary, but some experts peg the number of new homeless as high as 20,000. Moreover, nearly 20% of Greeks no longer have enough money to cover daily food expenses, according to a recent study by the Organization for Economic Cooperation and Development. The nation’s unemployment rate is 26%, the highest among 28 European Union members.

At Athens’ many apartment buildings, stories are rampant of people delinquent on so many months of rent that they simply leave behind keys and furniture, sneaking out in the middle of the night.

Until five years ago, it was hard to imagine masses of people living on the streets here; homelessness was so negligible that almost no one even bothered to measure. At the time, this was a strong welfare state with a rich tradition of family bonds. But austerity has eroded the former, and economic recession has frayed the latter.

The crisis has played out in a kind of domino effect. What might begin as a hard-luck case or two soon cascades through families and social groups. At some point there are too few roofs for too many relatives or friends.

The Greek people elected Syriza precisely because the austerity policies promoted by the Troika have left their country devastated.  See the video below for a five minute history of the forces propelling Syriza’s January 2015 election victory.  To this point, Syriza has offered several proposals involving compromises of its initial position.  However, these have all been rejected.  Syriza, for its part, continues to reject the Troika’s “take it or leave it” demand.

Experts claim that if Greece defaults on its loan to the IMF the government will be unable to sustain the country’s economic activity; Greece no longer prints its own currency so the government would not have the funds to pay salaries or support services.  It will be forced to put capital controls into place, nationalize the banking system, leave the euro area, and reintroduce its own currency.

Everyone agrees that the Greek economy and people will suffer in the short run regardless of whether it leaves the Euro Area or accepts Troika dictates and gets the money.  However, it is the long run view of future events that is up for debate.

The Troika argues that without a deal the Greek economy will enter a downward spiral leading to total collapse.  In contrast, some in Syriza argue that the above policy steps are precisely what the country needs to lay the ground work for a sustained recovery.  They point to Iceland’s use of similar policies to rapidly overcome its own devastating collapse after the great financial crisis of 2008.   

One thing is clear, euro membership has not produced the benefits promised for Greece and the other weaker euro area countries.  In fact, these countries actually did better before they adopted the euro, during the period when they had their own respective currencies which gave them some control over their interest rates and exchange rates.

MW-DO175_euro_c_20150616121435_ZH

As Brett Arends points out:

There’s a secret fear gripping the powerful across Europe.

It has policy honchos lying awake at nights in Brussels. It has bankers in Berlin tossing feverishly on their silken sheets. It has eurocrats muttering into their claret.

The fear?

It isn’t that if Greece leaves the euro, the Greeks will then suffer a terrible economic meltdown.

The fear is that if Greece leaves the euro, the country will return to prosperity — and then other countries might follow suit.

Take a look at the chart, above.

As you can see, Greece with the bad old drachma had double the economic growth of Greece under the euro. Double. And it wasn’t alone.

Italy, Spain and Portugal tell similar stories. Their economic growth back in the 1980s and 1990s, when they were “struggling” with the lira, the peseta, and the escudo, makes a mockery of their performance under the German-dominated euro.

Of course nothing is certain.  To this point a majority of Greeks want their country to remain in the Euro Area and Syriza is hoping that the Troika will modify their demands for austerity, accept Syriza’s program which includes a moderate increase in spending for social programs and employment creation, and release the funds.

In the meantime, Syriza has taken a number of steps in respond to popular demands.  One on-the-ground commentator, Quincey, offers the following summary of some of them:

What the hell has the SYRIZA-ANEL government been doing all this time, apart from negotiating with its creditors?

The answer may be found below, through a list I compiled from various sources. The list is not exhaustive, I focused on issues which I consider interesting for an international audience.

So, here it goes:

The SYRIZA-ANEL government initiatives’ list, as of today.
1. 
The government passed the humanitarian crisis bill, which will provide some 300,000 families with food stamps, free electricity, and a rent supplement.
2. It confirmed universal, free access to uninsured Greeks (not migrants) to the public health system.
3. Abolished the 5 euro public hospital entrance fee/ticket.
4. Abolished pension cuts (which were scheduled to take place automatically in February 2015).
5. Reopened the Public TV/radio broadcaster (ERT). ERT had been shut down 2 years ago, by the right-wing Samaras government.
6. Re-hired some 4,000 public officers who had been sacked by the previous government, among which the cleaning ladies of Finance Ministry (who achieved nation-wide fame thanks to their long and consistent struggle).
7. Canceled the “hood law”, under which dozens, perhaps hundreds of people arrested during protests, were risking up to 7 years imprisonment.
8. Theoretically speaking, the government abolished the new maximum security prison where political prisoners were held (not all prisoners have been transferred to normal facilities).
9. Non-regularized migrants held in detention camps are –supposedly- gradually released (the extent to which this process is actually taking place is debatable); police controls on migrants are significantly milder.
10. Generally speaking, police repression of protest is significantly milder (compared to the previous governments, one could say non-existent).
11. The Greek Parliament introduced an Odious Debt Committee to control for the legitimacy of the public debt (a mostly symbolic move).
12. The Greek Parliament founded the German War Reparations Committee (Greece has not been repaid the obligatory “loan” Nazi occupiers extracted during WWII, nor any war reparations).
13. The government introduced installments and discounts to help citizens and companies pay their debts to the state and pension funds.
14. A new bill will grant Greek citizenship to second generation migrants.
15. A bill is about to be voted, which will expand civil union to cover homosexual couples, granting them equal rights to the ones married couples enjoy.
16. An educational reform has been announced. The reform re-establishes academic asylum (abolished in 2011), reduces high-school students’ workload and allows for the so-called “perpetual students” (those who failed to get their degree on time) to retain their university student status.
17. The Minister of Labour, Panos Skourletis, has just announced that a (most-needed) labor reform, which would re-establish collective bargaining and collective agreements (practically abolished in 2012) will be introduced in the forthcoming days. The legislative proposal should – logically – include another major SYRIZA electoral promise, the gradual increase of the minimum monthly wage from approximately 550 euros (gross) to 750 euros (gross), during a period of 18 months. But we have to wait and see for that, as the reform has already been announced a couple of times, only to be blocked the day after by the country’s creditors.

So far, Syriza maintains majority support despite Troika efforts to discredit it as reckless and incompetent for rejecting the status quo.

More to follow in another post.

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