The Guardian: “The troika is supposed to build Greece up, not blow it apart”

The Guardian — The phrase “trench warfare” comes to mind. On Friday evening the Greek prime minister, Alexis Tsipras, lobbed some choice words at his foes in Brussels, calling their proposed debt deal “absurd”. Days earlier, the International Monetary Fund had joined its allies in Brussels to fire a volley of criticism at Athens. The Greeks already had “significant flexibility” to get out of their budget mess, IMF boss Christine Lagarde said, as she urged Athens to repay the €300m instalment of its bailout loan due on Friday.

This could go on for several more weeks: Greece told the IMF it will have to wait until the end of the month to get its money, when it will “bundle” four payments together. And should the sides become more entrenched, this long-running war could still end in the disaster of Greek default.

In Washington, where the IMF is hunkered down, and in Europe’s finance ministries, the Greek stance is considered wilfully unreasonable. The Syriza government’s demand for the return of national pay bargaining, a relaxed timetable for pension reform and a lower budget surplus than that demanded by the EU, the IMF and the European Central Bank are all but ridiculed in Berlin, Helsinki and Riga.

As Greece’s chief creditors, the EU and the IMF want Greece to adopt flexible labour markets, immediate restrictions on early retirement and a budget surplus big enough to accommodate some debt repayments.

This is not about letting a leftist government off the hook, but about giving it more time

While much of what the radical leftists want seems unreasonable – especially the slow pace of pension reform, which in effect would allow tens of thousands of people in their late 50s to grab early retirement – it is the demands being made by Brussels and the IMF that are unconvincing and, worse, untenable.

Running a larger budget surplus is only going to destroy Greece, not build it up. As US economist Joseph Stiglitz and many others, including former IMF staffers, have pointed out, the troika of creditors badly misjudged the economic effects of the programme they imposed in 2010 and 2012.

“They believed that by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth,” Stiglitz said last week. “They also believed that the first restructuring would lead to debt sustainability. The troika’s forecasts have been wrong.”

The current proposals repeat the same mistake. Seven years after the crash, the Greek economy is still 25% smaller than it was at its previous peak, 10% of households have no electricity and youth unemployment is running at more than 50%. Tsipras and his finance minister, Yanis Varoufakis, may specialise in needling their creditors, but the troika also need to take into account the fact that Syriza has formed a legitimate, democratically elected government and cannot be told that its electoral programme is irrelevant.

So Lagarde and European commission president Jean-Claude Juncker must be the ones to table further compromises. Neither was in charge when the first Greek bailout set all sides on the current disastrous path. They should explain to Ireland and Portugal, also suffering austerity, that Greece is too weak to survive more bloodletting.

According to one estimate, Brussels needs to sanction only an additional €10bn of loans to get Athens through the next few months, after which a longer-lasting deal can be constructed. The troika should create the funds and stop insisting on surpluses as a prelude to meaningful talks.

Lagarde’s plan is simply too severe. This is not about letting a leftist government off the hook, but about giving it more time. Much more time.

Giorgos Stathakis, one of many former academics in the Syriza government, said last week: “We have a mandate from the Greek people to go on, to try to change the terms of the agreement.”

He and his colleagues are not going to give up on democracy, and as the end-of-June deadline draws closer, creditors should show the Greek people more respect. It’s time for a truce.