Remember back in May and June of 2010 when, amidst violent protests that produced some corpses, the Greek government agreed to impose a number of austerity measures of the kind favored by the IMF? Sure, the deep cuts in social services, pensions, and public sector salaries/benefits hurt quite a bit. However, the painful adjustment was worth it – a little over one year later the Greek economy is clawing its way back to health.
Wait. Let me check something.
No, actually Greece is more screwed than ever.
Don't worry, though. The IMF is charging over the hill like a knight and shining armor to save Greece (again!) with more helpful fiscal policy reforms. This time the magic elixir – It'll fix everything, really! – is a mass privatization program. Nothing says "building a strong economy for the future" like a fire sale of public assets. Maybe if we're lucky we'll get the chance to buy an airport or two on eBay.
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The IMF (and its proxies in the European Commission) isn't exactly a new actor on the global financial stage. It sure is interesting, though, to see its "Structural Adjustment Program" – basically a shock doctrine of the usual neoliberal jerk-off material – put to work on an industrialized, first-world nation. Their routine of coming to countries in their darkest hour offering a financial rescue package in exchange for Koch-ifying their government and letting global investors strip mine the nation's assets is not new. It has been happening to small, underdeveloped countries for decades. It works wonders. Just ask Haiti.
These international organizations intervening in domestic financial crises aren't evil, as some detractors claim. It's simply a matter of understanding their purpose.
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Their sole concern in every instance is to make sure the banks and financial institutions get repaid. That's it. It's not about rescuing Greece's economy or protecting future generations from debt. It's about preventing the country from defaulting on its debt at all costs. And the only alternative to accepting the poisoned chalice of loans from the IMF/EU/Germany/etc. for a country in Greece's current situation is to default.
I'm not exactly Johnny the Economist, but I understand the consequences of default on a national scale to be quite dire (if Argentina's example is generalizable). Nonetheless part of me wishes that Greece would look calmly and rationally at the history of countries that have accepted this kind of "structural adjustment" in return for a bailout loan before deciding whether to proceed with such radical changes.
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Is default a better option? Maybe, maybe not. I doubt that it is. The point is that no one bothers to ask the question. The conversation never takes place. All proposals to alleviate the crisis proceed from the ironclad assumption that the banks' money must be protected at all costs. The kingpins in the global financial community warn sternly of the consequences of default, and certainly there would be many for Greeks of all social and financial classes. That said, the consequences of the Fire Sale privatization and austerity plan are considerable as well, especially given that as Greece's own experience last summer argues, such plans don't actually work.
It isn't about what "works", though. It's about seizing opportunities to institutionalize conservative dogma, eliminate welfare states, and pursue the kind of failed low tax strategies that produce such a windfall for the top 1% and do so little to promote long term economic growth.
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So check back next summer when we find ourselves in the same situation yet again; after the Greeks have auctioned off the airports and highways and power/water supplies and anything else of value, then what?
Edward says:
This plan certainly worked well for Russia. A Greek economist who recently modeled this privatization plan found it had absolutely no chance of working. He is interviewed in the second half of this show:
http://shout.lbo-talk.org/lbo/RadioArchive/2011/11_06_04_16.mp3
J. Dryden says:
But…but Dick Cheney told us that Reagan proved that deficits don't matter! So now I don't know what or who to believe!
sarah says:
oh come on, when has unregulated private banking ever caused any problems?
Nunya says:
The only end to all of this chaos is to forcefully inform the creditors that they have no chance of recovering their investment and they had better stand in line with thte rest of uss that lost our shirts when the economy went to shit.
Since when did an investment come with a government guarantee? You gambled, you lost. Get the fuck over it.
Wisakedjak says:
I love how, in order to ensure that the debt is paid, they give the entity in question another loan. It's like planned obsolescence, ensuring that the loaner will always be able to draw debt from whoever they target.
cschack says:
Interesting reading from a Greek perspective:
http://sturdyblog.wordpress.com/2011/06/18/democracy-vs-mythology-the-battle-in-syntagma-square/
And some more about the time Greece cancelled Germany's debt and Europe failed to fall apart: http://www.eurodad.org/blog/index.aspx?id=4465&blogid=1758&blogid=1758
Patrick says:
I'm not sure I find your narrative persuasive. There is a lot more at stake here than the interests of bankers. The fate of the Euro hangs in the balance. In my opinion, the IMF, for all its failings, is the one organization that offers a chance of escaping this slow moving catastrophe. Punitive measures, in this case, are probably not about actually paying off the debt, so much as they're about selling an IMF bailout to French and German voters.
The Greek government was extremely irresponsible before the crisis. Now the rest of the EU is expected to pay their debts so that countries that were not irresponsible don't also face crisis. Since the EU effectively controls the IMF, yet many other countries contribute, they can offer a deal to Greece at better terms than could be expected from pretty much anyone else. If the IMF has to make Greece sell some airports to make a bailout more palatable to the remainder of Europe, that seems a reasonable price to pay. I'm hoping this stuff is the flashy acting that distracts as the magician pulls a rabbit out of the hat.
doug says:
Patrick, the greek gov't did not lend or borrow the money. Banks from Germany, Spain, US, etc loaned money in very reckless ways, that should cost the banks to have massive losses. So far, the banks have minimal losses on the loans as they have convinced their gov'ts to be their strong men.
The idea of Greece trading their debt(of BS paper Euros) at full value for their airports is crazy. No one would give the bank full value for their 'asset' or loan. Maybe they could get 40%, maybe. BUT NO, they want 100% of their monies they stupidly loaned to be returned with interest. Then after they take the airports, Greece still has the debt! NOT GONNA WORK.
There are very powerful very rich folks who will try to kick this can down the road some more. One day it won't work. The debt will not be repaid.
BTW the US takes only 4 days to borrow and spend the ENTIRE Greek debt amount. So, we are not in a good space either.
Major Kong says:
There's a joke going around Moscow these days:
“Everything the Communists told us about communism was a complete and utter lie. Unfortunately, everything the Communists told us about capitalism turned out to be true.”
c u n d gulag says:
Patrick,
To add to what 'doug' wrote, not only did the banks lend Greece money recklessly, the also helped them juggle the books so that the banks could continue to lend money – even more recklessly.
And you'll NEVER in a million years figure out who Greece asked to come in and help them to mask their looming financial disaster!
What?
Goldman Sachs! How did you know?
http://www.spiegel.de/international/europe/0,1518,676634,00.html
"Shock Doctrine," indeed.
It's like a new production of the opera, "The Rape of Lucretia," and this time, it's Greece's turn to play 'Lucretia' – the IMF always plays 'Rape.'
acer says:
@c u n d:
Insert tasteless DSK joke here.
@Patrick:
Even if you're right, it doesn't explain how the one, true recipe for economic recovery is, and must be, Reagan libertarianism. Ethics aside, squeezing the desperate and channeling the money to billionaires just has limited use as a long-term strategy. After the fire-sale and the public-sector bloodbath, Greece will eventually be busted again, except that this time its middle class will be torchig police cars and all its assets will be owned by bankers in "the Cayman Islands." There's no endgame here, no C option after "default now" and "default later." This sounds more like the US than the EU, and we've seen how awesomely it works here.
hondamikesd says:
Moral hazard is a bitch, unless, of course, you're a bankster.
I'll see your Argentina and raise you an Iceland, a country now selling 5-yrs at a reasonable 5%.
Tim H. says:
I kinda' think bankers on the public tit is a nastier spectacle than any number of cadillac driving welfare queens.
buckyblue says:
According to Krugman, defaulting was the best thing Argentina did.
http://krugman.blogs.nytimes.com/2011/06/23/dont-cry-for-argentina/
Adam says:
I think Argentina is the best parallel right now to Greece. Actors are trying to salvage restrictive monetary policy by building a bridge to next month, and the month after, and the month after… when they should really default now.
Default didn't cause panic in Argentina, though it did wipe out a lot of savings. Panic had been there before, in the form of frozen bank accounts and 25% unemployment. Going from bank accounts denominated in Euros to bank accounts full of drachmas might effectively shrink middle-class Greeks' savings accounts by 50% or more. That's a huge psychological and financial blow for everyone. If I were Greek right now, I'd be withdrawing everything I had, and carrying it over to a French or Austrian bank while on "vacation."
The Argentine economy recovered, however, because of a commodities boom and restored foreign investment in the country. I don't know what Greece produces and exports that could help it recover with a much weaker drachma. Certainly tourism isn't going away.
Germany and France have stakes in preventing default because it's their banks holding Greek bonds. So they're not disinterested actors. They're terrified of Greek default, because it'll liquefy the ground under their own banks.
Sure, "the Euro" might suffer, but it's not a real thing, it could use some depreciation, and it probably shouldn't exist in the first place without mechanisms for labor market adjustments in the southern peripheral countries.
As to privatization, there are ways it can be done right and done wrong. Alberto Chong and others have academic work on this. Sometimes, it makes sense that the government should be paying for health care rather than throwing money at money-losing airports. More often, it's done poorly.
Recommended accessible reading on Argentina: "And the Money Kept Rolling In (and Out)…" by Paul Blustein.
Adam says:
Oh, and Michael Mussa's "Argentina and the Fund" is an insider's view of the pathologies of the Fund. He was there from 1991-2001 as one of the chief economists.
Hawes says:
I got dibs on the Acropolis. I'm going to turn it into a Denny's.
Brandon says:
Whatever one's thoughts about the IMF, they haven't been the driving actors behind the EU bailouts. They have contributed less than 30% of the loans to Greece, Ireland, and Portugal. The rest has come from an EU stability fund, funded jointly by EU member states. The EU isn't exactly a "proxy" of the IMF (and I assume you meant the European Central Bank instead of the European Commission, since the latter is one of three main policy making organs of the EU), it is an interested actor in its own right. The EU has been an unambiguously pro-free trade project since its inception. That's not exactly a secret. I think that fact gets obscured sometimes by the fact in domestic matters, European states have maintained fairly extensive welfare systems. But when it comes to external relations, European integration has been all about reducing trade barriers and ensuring the free movement of goods and capital. Whether one supports that project or not, aspiring member states are well aware of that fact when they sign up. So the Greek political class hasn't exactly been a passive victim in this fiasco. It sucks that ordinary workers will have to suffer rather than the leaders who made the decisions that created the mess, but that is how these things tend to go.
acer says:
@Brandon:
The fact that a extreme free-market libertarian project like the EU is considered "socialism" in America really shows how much our own political weight has shifted and what our influence has gotten the rest of the world.
Fossella says:
it's worth looking at what Paul Krugman has been saying about Argentina. Their default was not a disaster.
http://krugman.blogs.nytimes.com/2011/06/23/dont-cry-for-argentina/
JohnR says:
You know, slavery is economically not a bad idea. Plus, slaves can fetch a good price on the open market. Greece could be solvent again in only a few decades…
acer says:
@JohnR:
Now I really want a Greek houseboy. Can I name it?
Tim H. says:
If you name him "Receptacle", just don't let us know, ;-)
Noskilz says:
Only time will tell, of course, but there's also the notion that the Greek government is just promising whatever to get the rest of the aid they were promised last year, and that the real test will be what happens when just promising isn't enough.
I understand that just blatantly defaulting would be ugly, but if that's the route that makes the most sense for Greece, perhaps it's long overdue to remind bankers and investors that such things can happen.
Turkler says:
Defaulting is the only option. The total failure of banks to properly underwrite and their refusal to take a reasonable haircut on these loans means that default is the only morally correct action. Paying the bankers is idiotic, cruel, and wrong.
But a default, of course, must be accompanied by radical changes to the Greek system of governance, most notably an end to the apparently widespread corruption and inefficiency of tax collection. So it's not like default is some magic bullet. But it, along with totally reasonable political reforms, is patently necessary.
Nomad says:
Holy Crap! These Greek folks retire at 53 with 80% income. Why the hell should anyone else – even the evil banks – finance that nonsense?
Anyhow the US should focus on getting their shit together. What a clusterfuck their finances are. Greece goes down? Big deal…. but the US could really fuck things up for the rest of us.
Patrick says:
@doug,c u n d gulag, & acer:
The objection I'm hearing is that this isn't fair: Banks are getting a pass but Greece isn't.
#1 I'm willing to accept some unfairness if it keeps the Euro and the EU together.
#2 Banks may not be taking a huge loss, but they're still taking a losses. Even if the bonds are eventually paid back at face value(they won't be) banks are taking a liquidity hit because they can only trade Greek bonds at rock bottom prices. Ultimately, this liquidity hit ends up amounting to real losses for banks.
#3 Greece is actually getting a pretty good deal. Even before the crisis they were running a debt around 105% of GDP. That is around $300B. They're expected to raise $50 B in funds with these sales. So that is still $250B that they've gotten to spend on whatever and not have to pay back.
#4 I should note, news of an actual bailout rather than just a postponement came out after my earlier post.
http://www.guardian.co.uk/business/2011/jun/27/greece-hope-french-banks-agree-debt-rollover
This will mean both a loss for Greece's creditors(banks) and a gain for Greece.
@doug:
You say "the greek gov't did not lend or borrow the money." This is wrong. The Greek gov't did not lend the money but they did borrow it. A lot of it. And they spent it. Greece's debt is much more than the amount that they expect to recovery from these sales.
@acer
You say: "Even if you're right, it doesn't explain how the one, true recipe for economic recovery is, and must be, Reagan libertarianism."
I don't think they're actually prescribing Reagan libertarianism. This is more the expectation that everyone take a haircut. Banks will take losses, and rich European governments will take losses. But Greece's government did spend and continues to spend extremely irresponsibly. Greece really needs to take losses and they really do need to run their government differently. In Greece, unlike the US, I'm not sure that there is any long run alternative to a smaller government.
Tim says:
This is the problem with austerity, especially in an environment of unemployment.
Most importantly, it shrinks the economy (the tax base) in order to pay bondholders that in the case of Greece, are overwhelmingly foreign. Thus the shrinking of the tax base to pay foreign creditors causes an actual lowering of revenues, which defeats the purpose of using austerity to pay back the debt.
Secondly, because these costs are overwhelmingly imposed on labor at a time when wages are falling, the cost of austerity is paid by workers. Yes, perhaps they were stupid enough to endorse a political system so ineffective, but I hesitate to blame them for the receptiveness of the political class to rentier interests. (Which presents a far better subject of taxation in order to pay back debt, as it will not shrink the economy in any direct manner).
Austerity is often self defeating, or so brutal that it accomplishes its goal on a mountain of human misery and bitterness. This is why devaluing your own currency is a right all government's should retain.
DS says:
@ Tim. In the United States, "austerity" is typically used as a buzz-word to demand the evisceration of the welfare state by Conservatives who demand that "waste" be cut when there really isn't any. Greece is pretty different. They lose $1 billion per year to tax evasion. Yes. An the Greek economy loses $1 billion to tax evasion. Their pension benefits are just ridiculous. There is so much waste and corruption in the Greek government there is apparently an office which employs dozens of people to supervise a lake or reservoir (can't remember which) that hasn't existed for twenty years. No one knows what those people do all day. Now "austerity" doesn't work; but in the case of Greece I just can't understand what people expect to happen. You have a massive debt that is fueled by corruption, an inability to collect revenue, total redundancies and waste in the government. You have to have cuts to remain solvent. And people are protesting? The problem is that a private sector basically doesn't exist in the country and people have grown so accustomed to the state of things that any attempt to reign in the debt through what would appear to be pragmatic, necessary measures is seen as some kind of fascist plot. I would not want to be a politician in Greece in the next five years.
Tim says:
"In the United States, "austerity" is typically used as a buzz-word to demand the evisceration of the welfare state by Conservatives who demand that "waste" be cut when there really isn't any."
I was referring to it in the way that the IMF uses it.
"Greece is pretty different. They lose $1 billion per year to tax evasion. Yes. An the Greek economy loses $1 billion to tax evasion. Their pension benefits are just ridiculous. There is so much waste and corruption in the Greek government there is apparently an office which employs dozens of people to supervise a lake or reservoir (can't remember which) that hasn't existed for twenty years. No one knows what those people do all day. Now "austerity" doesn't work; but in the case of Greece I just can't understand what people expect to happen. You have a massive debt that is fueled by corruption, an inability to collect revenue, total redundancies and waste in the government. You have to have cuts to remain solvent. And people are protesting?"
They won't remain solvent. It simply won't happen. The cuts are just maintaining debt service, nothing more. Ultimately, Greece will default in some fashion if creditors refuse to take a write-down. What is being done now is very much buying time, and as noted here, providing for a fire-sale of Greece's assets so that when Greece does default the interests will still retain the huge amount very cheap assets (happens in fire sales) that they purchased off of the Greek government.
When a system that is corrupted attains a level of debt that cannot realistically be paid back, it will not be paid back. That the understanding you miss.
The problem is that a private sector basically doesn't exist in the country and people have grown so accustomed to the state of things that any attempt to reign in the debt through what would appear to be pragmatic, necessary measures is seen as some kind of fascist plot. I would not want to be a politician in Greece in the next five years.
Tim says:
Also, to be clear, this strategy of bailouts that only buy time more importantly provides financial institutions with the time to gain strength before Greece's default, as in 2008 many were too weak to withstand it. As well, there is wrangling over the currency. Likely Greece will have to be ejected from the Euro.
Chris says:
No offense Gin and Tacos guy but nobody forced Greeks to have 1-1.5 mln civil servants.The government didn't even know how many people were getting cheques every month until last year when they forced everyone to sign up via computer.Nobody forced them to take loans ,nobody forced them to buy Porsche Cayenne