Less than a year ago, in August 2015, a seven month old left wing Greek government surrendered to the terms of European lenders and signed a new memorandum outlining the terms of another €86 billion loan, the third such ‘rescue’ agreement Greek governments had made since 2010 which, according to Eurostat’s own data, increased the country’s national debt from 126% of GDP in 2009 to 176% of GDP today .
This latest support package came after months of terse negotiations, a referendum on the terms of the deal – that were overwhelmingly rejected by the Greek people – the imposition of capital controls after the Greek banks were brought to the brink of bankruptcy and the final acceptance of a 5.4 billion austerity package, something that Europe still insists on calling ‘reforms’.
During these negotiations, Greek proposals for an alternative to the failed policies pursued by the lenders were rejected predominantly for two reasons : the lenders did not like the negotiating style of the then finance minister Varoufakis, who was not as humble and deferential enough towards his European betters, and the insistence of the German led block that the previous government had already agreed a package of measures and that the simple fact of a change of government could not mean a change in policy . Or, as Wolfgang Schaeuble put it, ‘a deal is a deal’
In return for caving in Greece got a €13 bn disbursement of funds on 20 August 2015 to allow the Greek state to pay back a short term loan of €7.16 bn made by the European Financial Stabilisation Mechanism on 20 July 2015, and the rest to pay back loan instalments and interest due from previous rescue packages. An additional €10 bn was set aside for bank recapitalisation.
The first evaluation of the programme, due last November, would ensure a further instalment to enable Greece to keep servicing its loans with some money left over for other commitments such as VAT refunds and paying suppliers.
And even though the Greek government has implemented the package of €5.4bn (3% of GDP) in tax increases and pension cuts as agreed, the lenders have not yet managed to conclude the first evaluation of the Greek programme.
Last month, the IMF made a dramatic move, demanding that Greece would also have to legislate additional “contingency measures” worth €3.6bn, or 2% of GDP, to be enforced automatically at any time up to 2018 in the event that it failed to meet its fiscal targets.
Last summer’s agreement was based on widely accepted, EU audited data on the Greek economy, but IMF officials said they need extra assurances as they doubt Athens’ ability to achieve a 3.5% primary surplus by 2018.
And in that the IMF is probably right. Projections on the Greek economy since 2010 from both the EU and the IMF have been wildly inaccurate. They are now predicting growth of over 2% for 2017, while the economy will be squeezed further by more tax increases.
The chances are that Athens will actually miss their target because the demands to generate and sustain big surpluses from a collapsing economy might be too much for even the most compliant of governments to be able to deliver. It is also unlikely that additional measures demanded by the IMF and any other additional measures that are sure to follow, will succeed in sustaining the required levels of surpluses , even if the government succeeds in an one-off 3.5% surplus in 2018.
Greece is being set budgetary targets that the IMF knows are unrealistic and is being set up to fail. It will then be punished further for being unable to do what was impossible in the first place.
‘If the EU figures are right then the new measures will not come into effect. If they are wrong, and IMF is right, then the new measures will be needed’ said Eurogroup president Jeroen Dijsselbloem in response to the IMF’s new demands, adding that ‘the contingency measures needs to be credible, legislated up front, automatic and be based on objective factors, which will trigger these contingent measures’.
Perhaps he has now forgotten that ‘a deal is a deal’ and that the European partners had made an agreement with the Greek government to complete the evaluation and discuss debt relief when the package of measures was implemented, so that Greece could be given more loans to pay back its creditors. And the mere fact that the IMF and the EU cannot get their figures right should not mean that the agreement can carry on changing at their whim.
Instead the lenders are once again asking for additional measures besides the ones agreed and accepted by the Greek government, pushing Greece towards default on its loan commitments, destabilizing the economy and the government, and once again raising the prospects of Grexit.
It is therefore relevant to ask for how long will the lenders can go on pretending that prescribing more of the same failed policies helps the Greek economy? And how are these catastrophic for Greece policies are going to change?
Perhaps it is time that the Greek people were given the chance to engage in a rational and balanced debate about the euro and come to an informed decision on whether to accept last year’s Shaeuble’s proposals for an assisted exit from the eurozone.