Should the Troika -
the Eurogroup, ECB and IMF - be concerned about how bread is sold in
Greece? You would think they had more important things to worry
about, like getting Greece out of the huge recession caused by their
own policies. But no, you would be wrong. The Troika decided that
standards specifying the weights that loaves could be sold at were a
restrictive regulation, and demanded change.
This is one of the
examples Joe Stiglitz quotes in his new book
on the Euro, which I review in the New Statesman here.
Now you might agree that at the very least this represents a
misdirection of the Troika’s energies, and more generally that it
involves unwanted interference in national sovereignty. But in Joe
Stiglitz you have one of the best economists in the world, so he also
tells you that there is a long-standing economics literature on how
regulations like these can increase competition because they
facilitate comparison shopping.
Stiglitz is very
critical of many other ‘structural reforms’ that were imposed on
Greece by the Troika. The only structural reforms that it might have
made sense for the Troika to suggest were measures that would have
moved resources into exports, thereby helping an external demand led
recovery (see Ireland or Spain). As I note,
even here Troika meddling may have had undesirable consequences.
As I said in a
recent post, a little knowledge can be a dangerous thing. But of the
three parts of the Troika, the IMF ought to have the knowledge to do
better. (The ECB has apparently
just created a task force to consider economic reforms.) Over 1,500
economists work at the Fund. Whether that knowledge gets to the right
people at the right time is another matter. But I suspect the main
problem at the fund is politics rather than economics. I have written
about this recently,
in the context of an Independent Evaluation Office report on the
IMF’s Troika role. Here
is a more substantive piece by Edwin Truman at the Peterson Institute
in a similar spirit.
Greece is currently
trapped in a debtor's prison created by the Troika. The Troika insist
that debts have to be repaid. The IMF knows the prisoner does not
have the ability to do this, but does not have the political will to
demand that as a result the prisoner should be released. Debt
repayment requires yet more austerity, which kills the chance of the
recovery, so even with austerity debts are not repaid. Some debt
forgiveness is probably in the interests of everyone, including the
creditors, because after a recovery Greece will be in a much better
position to pay any remaining debts. But it is politically
unattractive for the creditors, so it does not happen.
This is a disaster
for Greece, but a bad omen for Brexit. Those who advocated Leave say
it is in the Eurozone's interests to agree favorable trading terms
with the UK. To do otherwise would be to sacrifice economic interests
to make a political point. The obvious irony of course is that this is exactly what Brexit
was: sacrificing economic interests to make a political point. But
Brexiteers want to believe, in their topsy turvy way, that European leaders would
not be as reckless as they are. Greece is an example of how Europe's political leaders can also discard economic logic if it is in their own political interest to do so.
