Kathy Sheridan: How would we have weathered the Greek medicine?
‘If the Greeks get a massive write-down, what would that tell us about ourselves? ’
Protesters last week in Athens attend a rally in front of the parliament building, calling on the government to do a deal with its international creditors. Photograph: Reuters/Marko Djurica.
Amid the noise and the fury, we could take a moment to consider the terrifying reality of life for the people of Greece. But there are too many resonances with our own story to do this objectively, too many positions to defend.
If the Greeks get away with a massive write-down, what would that tell us about our own pusilanimous negotiators? Or ourselves?
After two bailouts in five years, Greece owes some €243 billion to official lenders. That includes around €56 billion to Germany, €42 billion to France, €37 billion to Italy, and €25 billion to Spain. Those countries have also contributed to the IMF loans. The simple narrative requires a villain. In Greek vox pops, it comes back to Germany. And the victims ? The Greek people.
Do the Greek people carry any responsibility? They would say no. It was their corrupt, right-wing governments that did them down. Someone kept electing those governments, for whatever reason. Just as Ireland elected three consecutive Fianna Fáil governments, knowing precisely what it was voting for. Were we blameless ?
If not, should that condemn us all to life-long slavery?
Remember the Wall Street narrative of 2008, when Lehman’s fell, and our screens were full of panicky bankers? We are where we are, they said; too big to fail; fix it. It was fixed for them, immediately, despite the posturing, the stomach-churning sense of entitlement, the sense that they would revert to type in a heartbeat.
If Syriza’s leaders now stand accused of posturing, of being cocky and careless with procedure, well they have learned from the masters.
In Ireland, we think we know what it feels like. Only four years ago, yields on Ireland’s eight-year bonds were such that we had an 85 per cent probability of default. Our truthteller-in-chief, Prof Morgan Kelly announced that the State was sleepwalking into a chaotic bankruptcy. He prescribed a two-pronged remedy: we should walk away from the bailout by dumping the banks in the lap of their putative owner, the ECB; then balance the national books immediately.
No further borrowing, no more tangles with the troika or the bond markets. Just ourselves alone on our ostracised little island, living in stinging austerity but with pride and sovereignty restored.
I asked some economists how the Kelly medicine would work. An immediate wipe-out of the deficit of €15- €19 billion would be a savage imposition on every citizen, for a start. Workers on the average wage would be down to €300 a month and the dole would be halved. Worst of all, it would be futile since the feedbacks – the crash in tax revenues, zero consumption, stalled economy, etc – would double the replacement amount needed by government and so on . . .
Can anyone hazard a guess as to how we would have weathered that?
Other prominent voices urging Ireland to default, looked to Argentina’s $100 billion default in 2002, as an exemplar. A quick glance revealed that it entailed capital controls, a 70 per cent devaluation, millions of layoffs and the collapse of per capita income from around $9,000 to about a third of that.
How would we have pulled together in that hurricane ?
Or should we have emulated Iceland (presuming we had our own currency)? They burned the bondholders and jailed bankers and their economy is in recovery. To do that, they endured interest rates of 18 per cent, a 50 per cent devaluation and capital controls lasting seven years. In 2009, they elected a left wing coalition before reverting four year later to their version of Fianna Fail – the party which had topped the poll for 80 years. Tens of thousands still struggle with mortgage debt and household insolvency.
The first point is there was no nirvana. The second is that our experience hardly equips us to fathom the bind in which Greek people find themselves.
In Ireland of 2011, despite the apocalyptic analysis, six out of seven jobs were still in place; nine out of 10 mortgage holders were managing to pay up on their original terms and out of every €100 of disposable income, €12 was being used to pay off debt or to build up savings, as economist Seamus Coffey, pointed out at the time. The government still had €22 billion in the bank. These figures shroud a multitude of profoundly painful realities but they also suggest that everything is relative.
Greek citizens, by contrast, have seen a quarter of their GDP wiped out, unemployment at Great Depression levels and 17 per cent unable to meet their daily food needs. The savage, humiliating, hopeless, austerity rollercoaster is going on five years now. The programme has failed.
As for Ireland, Morgan Kelly conceded last year that rapid growth had indeed returned – but the “miracle” was entirely down to ECB policies, he said. Which seems a tad harsh on everyone stumping up for the USC levies, watching pathetic private pension funds being raided and services cut to ribbons.
But yes, that’s the same ECB that “pushed quite hard” to get Ireland into the bailout, in the words of Kevin Cardiff. No policy is set in stone. Remember that, Greece.