Yanis Varoufakis: Greece needs an end to this loop of doom
Greece’s absence from headlines seen as a sign economy has stabilised - it has not
Former Greek Finance Minister Yanis Varoufakis says only the soup kitchens are flourishing in Athens these days. Photograph: Neil Hall/Reuters
After last summer, when the clash between Greece’s Syriza government and the insolvent state’s creditors ended, the world’s media moved on.
Greece’s rebellion against the austerity measures imposed on it was snuffed out in July 2015 when Prime Minister Alexis Tsipras folded.
Greece’s disappearance from the financial headlines since then has been seen as a sign that its economy has stabilised. Sadly, it has not.
Lest we forget, Greece had by 2015 already endured years of austerity. By 2013, more than a third of Greeks were living below the poverty line. By 2014, government wages and pensions had been cut 12 times in four years.
In comparative terms, by the proportion of national income diverted to reducing budget deficits, Greece had absorbed austerity measures almost nine times the magnitude of those imposed in Italy and about three times Portugal’s.
The result? Between 2009 and 2014, Italy’s economy grew by a paltry 2 per cent and Portugal’s contracted by 1 per cent; in the same period, Greece’s national income dwindled by a catastrophic 26.6 per cent — about the same as for America in the depths of the Great Depression.
The result was a humanitarian disaster only a 21st-century John Steinbeck could adequately describe.
Against this background, Greek voters elected my then party, Syriza, in January 2015 to negotiate an end to self-defeating austerity in exchange for serious reforms.
With the state now living within its means, I strove, as the country’s new finance minister, to convince our European and institutional lenders that their interest and ours would best be served by reducing tax rates and avoiding further cuts to already much reduced pensions.
As a compromise, I even promised a “deficit brake” — automatic tax hikes that would kick in if government revenues did not pick up within an agreed period.
My pleas fell on deaf ears, and I resigned. Greece’s creditors insisted instead on even higher sales taxes, as well as new cuts in pensions and wages.
The Greek government’s capitulation to the creditors even involved a preposterous obligation that all Greek companies should pay, immediately and in full, their estimated tax for the next year. The cruel screw of austerity turned again.
Once the new measures were implemented, incomes in Greece, which had picked up slightly while we put austerity on hold, began to fall again.
The bank closures that were forced by Greece’s creditors to make our government yield, and the new austerity that followed, revived the recession.
This increased the number of nonperforming loans on banks’ balance sheets — an astounding 45 per cent of all loans — with the effect of denying credit to potentially profitable export-oriented firms.
In 2014, close to half of Greek families had no adult in employment, while the cuts in public spending mean that for the past two years less than 10 per cent of the jobless receive any unemployment benefit.
Behind the grim numbers, an ugly reality looms, one that gets uglier by the day.
Small businesses have been crushed by punitive taxes, and a wave of home foreclosures is on the horizon.
Greece’s hospitals are running out of basic necessities, while our universities cannot even afford to provide toilet paper in their restrooms. In Athens these days, only the soup kitchens are flourishing.
Amid this endless suffering, have any lessons been learned? It seems not.
Greece’s economic misery seemed set to provoke a new standoff recently — except that, this time, it was between the International Monetary Fund and the European Union’s Brussels-Berlin nexus.
Chancellor Angela Merkel of Germany is reluctant to confess to the Bundestag that Greece’s bailout loans were always unsustainable.
To maintain the fantasy that they will be repaid as planned under the terms of last year’s deal, Berlin has insisted on setting a ludicrous target for Greece’s budget surplus.
(That target is 3.5 percent of gross domestic product every year starting in 2018 — roughly equivalent, as a percentage of GDP, to America’s military budget, but in Greece’s case, purely to service its foreign debt.)
The German condition amounts to imposing permanently escalating austerity on Greece. The IMF protested, correctly, that there was no level of austerity that could achieve this target.
In past weeks, there were indications that the fund was ready to insist on debt relief for Greece, allowing a lower budget surplus target and therefore less austerity.
Unfortunately, last week’s meeting of the so-called Eurogroup dashed these hopes.
With the IMF’s managing director, Christine Lagarde, notably absent, her stand-in capitulated to the Brussels-Berlin axis, postponing any debt relief until 2018 at the earliest.
Earlier this month, Athens had obediently introduced a fresh round of tax increases and pension cuts — the sales tax in Greece now stands at 24 per cent.
The IMF’s view is that these measures will fail to attain the impossible surplus target.
The fund is right about that, but the new solution it has condoned is as bizarre as it is counterproductive.
Instead of reducing the surplus target, the IMF’s representative at the Eurogroup meeting, Poul Thomsen, consented to the extraordinary decision to retrieve from the trash basket of last year’s negotiations the deficit brake that I had proposed in exchange for an end to austerity.
The idea is that if the 3.5 percent surplus target is missed — and it will be — then new tax increases and spending cuts will kick in automatically.
So, the very instrument that I had proposed as a substitute for austerity will now become its supplement. The mechanism will merely intensify Greece’s austerity-driven recession.
Reason demands an end to this loop of doom.
What Greece needs is a realistic restructuring of its debt and a primary surplus target of no more than 1.5 per cent of national income.
The government should also continue with reforms that target oligopolies in areas of the economy like supermarkets and the energy sector, as well as inefficiency and corruption in public administration.
Instead, the odd principle of imposing the greatest austerity for Europe’s most depressed economy lives on, spreading new misery through Greece and needlessly holding back recovery in Europe’s monetary union.
Yanis Varoufakis, a former finance minister of Greece, is a professor of economics at the University of Athens.
New York Times