Greece, the Sacrificial Lamb
By JOSEPH E. STIGLITZ
JULY 25, 2015
ATHENS — AS the Greek
crisis proceeds to its next stage, Germany, Greeceand the triumvirate of
the International Monetary Fund, the European Central Bank and the European Commission (now better known as
the troika) have all faced serious criticism. While there is plenty of blame to
share, we shouldn’t lose sight of what is really going on. I’ve been watching
this Greek tragedy closely for five years, engaged with those on all sides.
Having spent the last week in Athens talking to ordinary citizens, young and
old, as well as current and past officials, I’ve come to the view that this is
about far more than just Greece and the euro.
Some of the basic laws
demanded by the troika deal with taxes and expenditures and the balance between
the two, and some deal with the rules and regulations affecting specific
markets. What is striking about the new program (called “the third memorandum”)
is that on both scores it makes no sense either for Greece or for its
creditors.
As I read the details, I
had a sense of déjà vu. As chief economist of the World Bank in the late 1990s,
I saw firsthand in East Asia the devastating effects of the programs imposed on
the countries that had turned to the I.M.F. for help. This resulted not just
from austerity but also from so-called structural reforms, where too often the
I.M.F. was duped into imposing demands that favored one special interest
relative to others. There were hundreds of conditions, some little, some big,
many irrelevant, some good, some outright wrong, and most missing the big
changes that were really required.
Back in 1998 in Indonesia, I saw how the
I.M.F. ruined that country’s banking system. I recall the picture of Michel
Camdessus, the managing director of the I.M.F. at the time, standing over
President Suharto as Indonesia surrendered its economic sovereignty. At a
meeting in Kuala Lumpur in December 1997, I warned that there would be
bloodshed in the streets within six months; the riots broke out five months
later in Jakarta and elsewhere in Indonesia. Both before and after the crisis
in East Asia, and those in Africa and in Latin America (most recently, in
Argentina), these programs failed, turning downturns into recessions,
recessions into depressions. I had thought that the lesson from these failures
had been well learned, so it came as a surprise that Europe, beginning a half-decade
ago, would impose this same stiff and ineffective program on one of its own.
Whether or not the program
is well implemented, it will lead to unsustainable levels of debt, just as a
similar approach did in Argentina: The macro-policies demanded by the troika
will lead to a deeper Greek depression. That’s why the I.M.F.’s current
managing director, Christine Lagarde, said that there needs to be what is
euphemistically called “debt restructuring” — that is, in one way or another, a
write-off of a significant portion of the debt. The troika program is thus
incoherent: The Germans say there is to be no debt write-off and that the
I.M.F. must be part of the program. But the I.M.F. cannot participate in a
program in which debt levels are unsustainable, and Greece’s debts are
unsustainable.
Austerity is largely to
blame for Greece’s current depression — a decline of gross domestic product of
25 percent since 2008, an unemployment rate of 25 percent and a youth
unemployment rate twice that. But this new program ratchets the pressure up
still further: a target of 3.5 percent primary budget surplus by 2018 (up from
around 1 percent this year). Now, if the targets are not met, as they almost
surely won’t be because of the design of the program itself, additional doses
of austerity become automatic. It’s a built-in destabilizer. The high
unemployment rate will drive down wages, but the troika does not seem satisfied
by the pace of the lowering of Greeks’ standard of living. The third memorandum
also demands the “modernization” of collective bargaining, which means
weakening unions by replacing industry-level bargaining.
None of this makes sense
even from the perspective of the creditors. It’s like a 19th-century debtors’
prison. Just as imprisoned debtors could not make the income to repay, the
deepening depression in Greece will make it less and less able to repay.
Structural reforms are
needed, just as they were in Indonesia, but too many that are being demanded
have little to do with attacking the real problems Greece faces. The rationale
behind many of the key structural reforms has not been explained well, either
to the Greek public or to economists trying to understand them. In the absence
of such an explanation, there is a widespread belief here in Greece that
special interests, in and out of the country, are using the troika to get what
they could not have obtained by more democratic processes.
Consider the case of milk.
Greeks enjoy their fresh milk, produced locally and delivered quickly. But
Dutch and other European milk producers would like to increase sales by having
their milk, transported over long distances and far less fresh, appear to be
just as fresh as the local product. In 2014 the troika forced Greece to drop
the label “fresh” on its truly fresh milk and extend allowable shelf life. Now
it is demanding the removal of the five-day shelf-life rule for pasteurized
milk altogether. Under these conditions, large-scale producers believe they can
trounce Greece’s small-scale producers.
In theory, Greek consumers
would benefit from the lower prices, even if they suffered from lower quality.
In practice, the new retail market is far from competitive, and early
indications are that the lower prices were largely not passed on to consumers.
My own research has long focused on the importance of information and how firms
often try to take advantage of the lack of information. This is just another
instance.
One underlying problem in
Greece, in both its economy and its politics, is the role of a group of wealthy
people who control key sectors, including banks and the media, collectively
referred to as the Greek oligarchs. They are the ones who resisted the changes
that George Papandreou, the former prime minister, tried to introduce to
increase transparency and to force greater compliance with a more progressive
tax structure. The important reforms that would curb the Greek oligarchs are
largely left off the agenda — not a surprise since the troika has at times in
the past seemed to have been on their side.
As it became clear early on
in the crisis that the Greek banks would have to be recapitalized, it made
sense to demand voting shares for the Greek government. This was necessary to
ensure that politically influenced lending, including to the oligarchic media,
be stopped. When such connected lending resumed — even to media companies that
on strictly commercial terms should not have gotten loans — the troika turned a
blind eye. It has also been quiescent as proposals were put forward to roll
back the important initiatives of the Papandreou government on transparency and
e-government, which dramatically lowered drug prices and put a damper on
nepotism.
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