EU policy forces Greeks into dire, downward spiral

There are a few 20 year olds left in the village where I live – those who haven’t yet emigrated. They will be 60, maybe 70, before their country is free of debt. They are indentured to the mistakes of politicians and the depredations of financiers who cannot be called to account.

The downward spiral of the Greek economy continues. The EU's insistence economic growth can be achieved at the same time as increased austerity flies in the face of the fact that Greece cannot repay its existing debts. Lending money to Greece so it can service its interest payments merely drives the debt further into the pockets, hearts and minds of ordinary people.

The latest agreement has been seen as a breakthrough, first because Greece seems to have satisfied creditors on its ability to continue the reform programme, and second because the principle of debt relief has been accepted.

But to secure the latest tranche of the bailout (€7.5 billion), Greece has been forced to implement a hike in VAT from 23 to 24 per cent, plus tax increases on public transport, heating oil, petrol (up three to five cent a litre), coffee (up €2-€4 a kilo), phone and internet services (an extra 5-10 per cent).

Yet the EU remains suspicious of Greek intentions, so a further €2.8 billion is being withheld, on the grounds the enabling legislation passed on May 21st needed immediate amendment, to close loopholes adroitly created by Athens.

Brussels intransigence

Of the €7.5 billion, €2.8 billion is immediately repayable in debt interest. The government owes over €6 billion in unpaid bills from the private sector. Either these service industries will be paid, leaving nothing to stimulate growth, or they will join the international creditors but without their clout. Budget surpluses, on which economic recovery depends, are almost inconceivable, thus accelerating the downward spiral and making the bailout unworkable. It is the EU’s intransigent insistence that tax hikes and surpluses can co-exist which puzzles economists worldwide. But economists do not rule the world.

The idea of debt relief was dismissed for many years as unthinkable. Now, everyone admits it is vital, but there is no concrete agreement. The rift between the International Monetary Fund and the EU on the issue continues to grow, because it is a turf war. The decision on the details of debt relief has been effectively postponed until after the German elections in 2018, since Angela Merkel would be unable to sell it to her voters.

There is a disturbing sense of “I told you so” about last month’s agreement to disagree. While we watch vacillation between Brussels and Washington, Greece goes deeper into debt in order to be rescued from debt. Mortgages in Greece, where they exist, are short-term: you make massive repayments over a very limited period. No Greek would contemplate remortgaging his house, which is what consecutive bailouts mean on the national level.

Failure of nerve

At the beginning of this year, voters expected a new election before the summer, yet not only has prime minister

Alexis Tsipras

stayed in power, he has allowed the situation to become even worse. His failure of nerve last July and the revolt of his hardline backbenchers precipitated the September election that confirmed him in power. Now, one might expect Tsipras to tread more carefully through the EU’s minefield. But he has once again risked further catastrophic defections of his MPs and got away with it.

Despite the growing attraction of New Democracy with the charismatic Kyriakos Mitsotakis at its head, Greeks still hope Tsipras can protect them. They don’t believe, but they hope. And although that hope is waning, they prefer the devil they know. Mitsotakis bears one of the three most prestigious names in Greek politics (the others being Karamanlis and Papandreou). But Tsipras and Syriza came to power precisely because they had no connection with these tainted families.

Desmond Lachman, a former IMF director of policy, warned last month "Greece is once again being cynically sacrificed for the political convenience of its European taskmasters". Cynics would say "So what's new then?"

The people I live among know different. A colder winter and less food on the table. Nevertheless, tourism in Corfu will increase next year, partly due to the UK series The Durrells and partly because, on the west coast, we are a refugee-free zone. The only refugees here are the internal exiles from hope.