Friday 10 February 2012

Losing the Plot on Greek Austerity

I have the impression European leaders have lost the plot when it comes to Greece.

Greek unemployment hit 20.8% in November 2011, or just over 1 million people in a labour force of five million. Real unemployment is much higher, as the government is funding approximately 450,000 labour positions with subsidies and training grants.

Eurostat revealed that 27% of Greeks are classified as living in poverty.

The leader of the Troika’s monitoring mission, Poul Thomsen, was quoted in The Guardian on February 1st as stating that fiscal adjustment had reached its limits:

Poul Thomsen, a senior International Monetary Fund official who oversees the organisation's mission in Greece, also insists that, contrary to popular belief, Athens has achieved a lot since the eruption of the debt crisis in December 2009.

"We will have to slow down a little as far as fiscal adjustment is concerned and move faster – much faster – with the reforms needed to modernise the economy," he told the Greek daily Kathimerini, adding that the policy shift would be "reflected" in the conditions foreign lenders attached to a new rescue programme for Athens.

In an extraordinary departure from the script the IMF has followed to date, the Danish official, who is also in charge of the IMF programme in place in Portugal, acknowledged there was a "limit" to what society could endure.

"While Greece certainly will have to continue to reduce its fiscal deficits, we want to ensure – considering that social tolerance and political support have their limitations – that we strike the right balance between fiscal consolidation and reforms," he said. As such, the IMF had cautioned against "an excessive pace" of fiscal reduction.

It is all the more confusing, therefore, to see the latest demands of the Troika (of which Mr. Poulsen is the lead negotiator), which are almost exclusively all fiscal austerity: reductions in the minimum wage, reductions in supplemental pensions, further reductions in government spending.

Hannes Swoboda, leader of the Socialist and Democratic Group in the European Parliament, sent a letter to European Commission President Jose Manuel Baroso, in which he wrote:

"I am writing to express the grave concern of the S&D Group over the terms of conditionality imposed by EU negotiators on Greece as the price of approval of the latest tranche of loan funds.

"Representatives of the Commission seem to have conducted themselves on the basis of the unfounded assertion that Greece has not made sufficient efforts to restore fiscal stability and have imposed conditions which have less to do with economics than with ideology.

"It is the ruinous policies of extreme austerity imposed on Greece, which have driven it into ever deeper recession.

"The S&D Group believes that the punitive and ideological approach of the Troika to the Greek sovereignty problem is a gross betrayal of the European social model and of the solidarity which is a founding principle of the Union."

Yesterday evening, Eurozone financial ministers gave Greece the cold shoulder, despite the fact that the government has just agreed to unprecedented austerity measures which will exacerbate the depression—austerity measures which had been demanded by the Troika.

I watched a late news conference Thursday night following the Eurozone meeting with great disbelief. Jean-Claude Juncker insisted on “implementation”, by which he meant passing of a law agreeing to the austerity. But the whole problem in Greece is that laws are passed which aren’t fully implemented. Ollie Rehn didn’t do much better, making vague promises on how the European Commission wants to both increase monitoring, and help Greece with structural reforms. There’s been almost no sign of anything practical so far, and certainly nothing which can counterbalance the deleterious effects of Troika austerity. 

The behaviour was so insulting, that it led today to the resignation of LAOS from the coalition government. George Karatzaferis aptly said:

"The creditors are asking for 40 years of submission,” Karatzaferis said. “Greece will not give itself up. Greece can survive outside the EU but cannot survive under a German boot.”

I am afraid that the more this situation continues, the more I agree with both George Karatzaferis and Alexa Papariga, head of the Communist Party of Greece. Although these two leaders represent the extremes, it's a sign of just how badly things must be when I, a financially-minded moderate, agree with them. 

I have never seen a simple financial restructuring handled this badly. It’s yet another indication that the great European experiment is probably coming to an end. Anybody who believes in “European values” after this process must be living in the twilight zone.

© Philip Ammerman, 2012
Navigator Consulting Group


  1. Loukas Papademos must have read your blog, Philip. He made a specific point in his cabinet speech tonight about how one of the austerity plan's prongs is to increase competitiveness, create growth and jobs. Personally I am as doubtful as you are, though I think agreement with people like Karatzaferis and Papariga, where it occurs, is owing to a parallax view.

  2. Paris Februay 11, 2012
    Dear Philip,
    To my mind, the various EU intervenants, are in act "drowning the fish" as we say in France. I read between the lines, the thought that they do not trust Greece and its political actors of all ilk, to institute or rather to follow up in a long long long process, over the years any sort of really constraining programme of financial/economic recovery. I clearly recall that when Greece joined the EU, there were smirking press commentaries, that Greece had no really fully met any of the standards for joining up (the same can be said for Bulgaria, Romania etc). When Greece adhered to the Eurozone, the same, this time openly worried comments were made in the press: Greece had a lax tax collection system, a large grey unaccountable economy, Greeks were not used to paying income and property taxes and that Greece, joining the Eurozone was heading for trouble. Now the time bomb has exploded, and to me its clear that EU officials, while prudishly puckering their snouts, are pushing Greece to default and eviction from the Eurozone, if not from the EU itself. Obviously they cannot openly urge default, this is most politically incorrect, but the ignominious rules which are being pushed unto Greece and its peoples, are clearly designed to be rejected, by all Greeks and their political parties, in a show of solidarity, wounded national pride and rare political unity. When Greece does default, as it no doubt shall, everyone will say, we told you so, and the festering situation will have been cleared off the desk. I suspect that a default and subsequent departure from the Eurozone, will be easier to handle, than 20 years of Camp Pendleton fiscal discipline !