Zero Hedge — Austerity is over, proclaimed the IMF this week. And no doubt attributed that to the ‘successful’ period of ‘five years of belt tightening’ a.k.a. ‘gradual fiscal consolidation’ it has, along with its econo-religious ilk, imposed on many of the world’s people.
Only, it’s not true of course. Austerity is not over. You can ask many of those same people about that. It’s certainly not true in Greece.
IMF Says Austerity Is Over
Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor.
In Greece, the government did not increase spending in 2016. Nor is the country’s era of spending cuts at an end. So did the IMF ‘forget’ about Greece? Or does it not count it as part of the rich world? Greece is a member of the EU, and the EU is absolutely part of the rich world, so that can’t be it.
However this may be, it’s obvious the IMF are not done with Greece yet. And neither are the rest of the Troika. They are still demanding measures that are dead certain to plunge the Greeks much further into their abyss in the future.
But sure enough, the Hellenic Statistical Authority (ELSTAT) jubilantly announced on Friday that the 2016 primary surplus was 4.19% (8 times more than the 0.5% expected). This is bad news for Greeks, though they don’t know it. It is also a condition for receiving the next phase of the current bailout. Here’s what that comes down to: in order to save itself from default/bankruptcy, the country is required to destroy its economy.
And that’s not all: the surplus is a requirement to get a next bailout tranche, and debt relief – but as a reward for achieving that surplus, Greece can now expect to get less debt relief. Because they managed to squeeze another €7.3 billion out of their poor. So they should always be able to do that in every subsequent year.
The government in Athens sees the surplus as a ‘weapon’ that can be used in the never-ending bailout negotiations, but the Troika will simply move the goalposts again; that’s its MO.
A country in a shape as bad as Greece’s needs stimulus, not a budget surplus; a deficit would be much more helpful. You could perhaps demand that the country goes for a 0% deficit, though even that is far from ideal. But never a surplus. Every penny of the surplus should have been spent to make sure the economy doesn’t get even worse.
The €7.369 billion primary surplus, in a country of somewhere between 10 and 11 million people, means some €700 per capita has been taken out of the economy in 2016. Money that could have been used to spend inside that economy, saving jobs, and keeping people fed and sheltered. For a family of 3.5 people that means €200 per month less to spend on necessities which is the only thing most Greeks can spend any money on.
The Troika is not “rebalancing Greece’s public finances in a growth-friendly manner”, as Dijsselbloem put it, it is strangling the economy. And then strangling it some more.
There may have been all sorts of things wrong in Greece, including financially. But that is true to some degree for every country.
And there’s no doubt there was, and still is, a lot of corruption. But that would seem to mean the EU must help fight that corruption, not suffocate the poor.
If you want to do that, taking 4% of GDP out of an economy, and 3.5% annually for years to come, it can only make things worse. And if the Greek economy deteriorates further, how can the country ever repay the debts it supposedly has? Isn’t that a lesson learned from the 1919 Versailles treaty?
The economists at the IMF and the EU/ECB, and the politicians they serve, either don’t understand basic economics, or they have their eyes on some other prize.
