Whenever I write a post critical of German views on Eurozone
policy, I get comments which can be paraphrased in the following way. Greece
(and maybe other Eurozone countries) are incapable of governing themselves
properly, and when they get into difficulties Germany has to bail them out, so
it is only reasonable that as a price for this Germany should insist on
imposing changes to the way these countries do things.
To say such an attitude is inherently wrong (wrong in any
possible circumstances) seems to be too strong. The IMF, after all, has played
a very similar role many times. Many may criticise the kinds of reforms that
the IMF has demanded as part of its conditionality, but to suggest that
conditions are never made as part of such a loan package seems unrealistic.
But while conditionality of any kind cannot be ruled out, it
can also go far too far. It should never become imperialism, and the choices of
a sovereign people should be respected and accommodated, not ignored.
It is clear that the Greek government ran up unsustainable
debts, and tried to hide these. As a result, it was bound to default on those
debts. As doing so would exclude it from the markets for a time, it was also
reasonable to lend (not give) Greece money to enable it to gradually rather
than immediately achieve primary balance. Some conditionality to correct any underlying weaknesses in the openness and
accountability of the budgetary process would seem
reasonable in such circumstances.
Contrast that with what actually happened. First the Eurozone
resisted default, and then it was only partial, which meant providing far
larger official loans than were needed. The beneficiaries of this were mainly
the financial institutions (e.g. Eurozone banks) who would have otherwise lost
money. Second, ridiculously severe austerity was imposed, which crashed the
economy and made it much more difficult for Greece to adjust. Third,
conditionality far in excess of what was required is being imposed.
I have argued before, based on very rough and ready calculations
that the fall in Greek GDP since 2010 could be entirely accounted for by fiscal
austerity. This conclusion has now been backed up by rather more rigorous
analysis in a new paper by Sebastian Gechert and Ansgar
Rannenberg. As we both acknowledge, some GDP loss was inevitable because the
deficit had to be reduced (and Greece does not have an independent monetary
policy which could offset the impact of deficit reduction). However, as always,
timing is everything. The paper argues that “most of the costs of fiscal
consolidation could have been avoided by postponing and gradually implementing
it after the recovery of the Greek economy, due to the lower expenditure
multipliers during normal times.”
The delay in default, its partial nature and a degree of
austerity that Gechert and Rannenberg describe as ‘biblical’ and which did such
damage are all acutely embarrassing for the Troika. But instead of criticism being
directed at these governments, we see a narrative that tries to blame what
happened from 2010 onwards on Greece itself, and the Greek people in
particular. The economy has crashed because the Greek people do not work hard,
austerity has not worked because it has not really happened, and there have not
been enough reforms. None of this is true, but the narrative seems largely
impervious to facts. (On reforms, for example, see here.)
All this reminds me strongly of how certain attitudes to
beneficiaries of the welfare state have been encouraged by the UK coalition
government. Rather than admit that unemployment benefits had risen because of
the recession and the absence of a recovery (itself a result of austerity), the
focus became on the personal failings of the unemployed themselves. The media
(TV as well as the tabloids) are still full of examples of supposed ‘welfare
cheats’, but they rarely put such examples into context: how tax evasion is a bigger problem that benefit fraud, for
example.
People do hate the idea of ‘their taxes’ allowing ‘other
people’ to get ‘something for nothing’. In contrast tax evasion does not sound too
different from tax avoidance, which many people do as much of as
they can. Condemning one and ignoring the other may be human nature. What is
clearly wrong is politicians playing on these feelings to misdirect anger away
from their own mistakes, or undertaking unnecessary or even harmful policies to
play to the gallery. A clear case of the
latter is the recent increase in benefit sanctions, which are being applied in
an excessive and unfair way, greatly increasing the use of foodbanks as a
result. That a committee of MPs where the government is in a majority have
expressed grave concerns about the policy just before an election gives an
indication of the scale of the injustice that has been taking
place.
When politicians do this, it is a sign of chronic political
weakness: a desperate attempt to cover up past mistakes. There is a strong
danger that the same dynamic may occur in the continuing standoff between Greece
and the Eurozone. Having encouraged a rhetoric
where a virtuous Eurozone has shown nothing but generosity to a feckless
Greece, politicians feel compelled to live up to that false narrative by acting
tough in negotiations, which does no one any good to put it mildly. When Putin
behaves recklessly to boost his popularity and succeeds, we can blame the lack of press
freedom. When political leaders in the UK or Germany play the same trick, do we
blame the media for playing along or the people for falling for it?
