Its my Friday lay day blog, which is sort of a dodge that allows me to be less focused. I have been holding my pen about Greece in abeyance lately until more details became clearer about what is going on in the so-called ‘negotiations’, which seems to be a euphemism so ugly given the reality that perhaps a new descriptor should be introduced. As the specific details emerge more clearly, the situation remains much the same as it was in January when the new Greek government was resoundingly elected to end austerity. Either the Greek government has to abandon its electoral mandate and capitulate and become just another ‘left-wing’ government overseeing the punishing austerity inflicted by the neo-liberal ideologues or it has to show leadership and take the nation out of the dysfunctional Eurozone and pursue its own path to more prosperous, if uncertain, times. Part of that leadership has to be to educate the public as to what the options are in a balanced rather than hysterical way. I have heard Syriza politicians claim that leaving the union would be catastrophic, which is not only false but just reinforces the public fear of exit. Further, all the nominations in February from Syriza politicians that the ‘negotiations’ to that date had been “successful” (Source), which any reasonable interpretation would have led to the conclusion that austerity was about to end in Greece, the reality now, is that the Greek government appears to be slowly capitulating to the venal demands of the Troika and the future for Greece is likely to be one of interminable economic stagnation, increasing poverty and rising social instability. But, hey, that is what success seems to mean now in this dark-age of Eurozone realities. If there weren’t real people involved in this tragedy, this could be a top selling farce.
We still do not have a very clear picture of the offers and counter-offers, although the leaked documents appear to show that the Troika (particularly the IMF) is holding basically to the line they have had all along – Greece will be punished.
It also appears that the Greek government is slowly but surely giving ground as they increase the intensity of the public claims that they are at loggerheads with the Troika. The reality apears to be that they will continue to impose austerity which will continue to devastate the nation.
So their so-called ‘red line’ beyond which they would not compromise appears to be a very fluid line and does not even exclude changes to the pension system.
The best indication one can get is probably from the Op Ed pieces that Syriza politicians who are not party to the Brussels shindig (or whereever these interminable meetings are taking place) are writing about what is going on.
The latest of these appeard in the UK Guardian yesterday (June 25, 2015) – Greece is being blackmailed. Exiting the eurozone is its way out – by Costas Lapavitsas.
He puts it pretty clearly I think.
The Greek government has proposed to:
1. “tough primary surpluses: 1% in 2015 and 2% in 2016”.
2. “to raise VAT on a range of widely consumed goods as well as imposing a host of taxes on enterprises and families of “high” income.”
3. To make “substantial savings on pensions”.
In total, the proposed cuts will further the austerity and damage economic growth.
Lapavitsas is clear:
The package is certainly deflationary at a moment when the Greek economy is again on the threshold of recession. There is little doubt that it would contribute to output contraction and higher unemployment in 2015-16, particularly as there is little prospect of being offset by an investment programme funded by the EU. It is a major retreat by the government of Syriza.
But even with this “major retreat”, the Troika bullies seem to be displeased. They want harsher cuts and more tax rises especially increasing the burden on the poorest members of Greek society.
Lapavistas says ” the prospect of a deal achieved on this basis would be simply appalling”.
The motivation of the Troika cannot be pure – I know that is an understatement – but after several years of policy failure no-one could seriously believe that inflicting more harsh austerity onto Greece could possible deliver the growth dividends that the IMF choose to publish (as in the graph below).
The “institutions” are once again attempting to impose the policies that have failed abysmally since 2010, causing huge contraction of GDP, vast unemployment and mass impoverishment. It would be a national disaster accompanied by the complete humiliation of the Syriza government.
All the documents and narratives that this is a growth-supporting strategy are lies. They are just produced to massage the public debate and avoid the true motivations being revealed.
That is where my thinking currently is on Greece. They are being punished for daring to elect a government that doesn’t bend over and implement the neo-liberal austerity as a preference.
The result will be the same – austerity. But Syriza has publicly stood up to it and in Lapavitsas’ words, the Troika is “keen to inflict a political defeat on a leftwing government that has dared to challenge the European status quo”.
So with the deadline now real (Tuesday next week I believe) for an agreement, the sham is reaching its end-point – for now.
In EU-style, these crises never really end. Something just gets imposed in an ad hoc fashion and deliberations continue.
But the IMF payment next week is real and the IMF rules clearly do not allow for rescheduling. All the flexibility that Greece had in bundling the sections of that loan into one, which they exercised a few weeks ago, is now gone.
Lapavitsas understands that:
Greece and the government of Syriza have now come face-to-face with the ruthless reality of the eurozone.
Greece should never have joined the monetary union and were only admitted as a result of a fraud perpetrated with the help of Goldman Sachs (them!).
They should never have entered the bailout agreements – and should, therefore, have exited then.
They should exit on Monday after spending the weekend organising the banks etc and getting Euros stamped until they can get a new currency issued.
Lapavitsas and other Syriza politicians understand that:
There is an alternative path for Greece, and it would include leaving the eurozone. Exit would free the country from the trap of the common currency, allowing it to implement policies that could revive both economy and society. It would open a feasible path that could offer fresh hope, even if it entailed significant difficulties of adjustment during the initial period.
And he and his associates should spend every waking hour educating the Greek people who elected them of this reality.
He says “it is incumbent upon Syriza to rethink its strategy and offer fresh leadership to the Greek people”.
The party hasn’t done that to date and have instead held out hope of a growth solution within the Eurozone. They badly underestimated the venality of the Troika, particularly the IMF.
But it is not too late to initiate this dialogue with the Greek population. Nothing could be as bad as staying in the Eurozone.
But more positively, exit will bring instant growth and reductions in unemployment. There would be a lot of noise associated with the first several months of activity but the reason that the Troika doesn’t want Greece to leave is because it would expose the austerity myth.
Beyond austerity is growth. Italy would see it. Spain would see it. Portugal would see it. And the word would spread that the Troika a second-rate tyrants who trade on lies and deception and Germany hides behind that wall of lies to reap its own prosperty at the expense of its monetary union partners.
I considered the IMF forecasting performance in this blog – 100 per cent forecast errors are acceptable to the IMF.
The IMF forecasting performance in relation to Greece has been nothing short of criminally negligent. In 2010, they predicted that by 2012, Greece would return to increasingly robust growth as a result of private sector confidence returning as a result of the declining fiscal deficits.
As the Troika were busily imposing austerity on beleaguered European nations such as Greece and Portugal, the IMF consistently claimed that their ‘modelling’ showed that if governments cut their fiscal deficits quickly, private sector spending would respond and growth would soon return.
In their – May 2010 Staff Report – the IMF predicted growth would follow a “V-shaped pattern” and that:
[Reference: International Monetary Fund (IMF) (2010) ‘Greece: Staff Report on Request for Stand-By Arrangement’, IMF Country Report No. 10/110, May].
… the frontloaded fiscal contraction in 2010–11 will suppress domestic demand in the short run; but from 2012 onward, confidence effects, regained market access, and comprehensive structural reforms are expected to lead to a growth recovery. Unemployment is projected to peak at nearly 15 percent by 2012.
The national unemployment rate in Greece remained at 25.6 per cent in March 2015 (latest data).
After being roundly criticised by the Independent Evaluation for engaging in Groupthink there were some changes in data presentation noticeable.
Please read my blog – The IMF – incompetent, biased and culpable – for more discussion on the Independent Evaluation in 2011.
One of the IMF responses has been to make their forecast evolution from the World Economic Indicators available as historical data.
The IMF say in the – WEO Historical data release that:
As part of efforts to enhance transparency, the World Economic Outlook (WEO) is making the historical forecasts’ data easily accessible to the authorities in member countries and other users.
I created the following graph from that data, although I had collected all the forecasts previously anyway. The new release makes it easier to quickly see the evolution of the IMF forecasts.
In this graph, the evolution begins in the April 2010 WEO forecasts for real GDP for Greece (per cent per annum) – 2010_1 and then 2010_2 is the October revisions, and so on. As we get closer to 2015, the forecast horizon extends, so the latest April 2015 forecasts (2015_1) go out to 2020.
The bright red columns (for easy identification) are the actual real GDP growth rates.
So you can see that in April 2010, the degree of contraction forecast (2010_1) by the IMF was 2 per cent whereas in reality it turned out to be 4.9 per cent.
As the crisis deepened, the IMF kept revising their forecasts up. The columns are only the forecasts for the relevant current year and then out to the relevant forecast horizon at that point in time.
It is obvious that the forecasts they used to justify their harsh austerity package for Greece were very inaccurate and remained so over the period of the so-called Memorandum (Bailout package).
Even in April 2015, the IMF was predicting relatively robust real GDP growth in the coming year and beyond. It is almost beyond belief, given the circumstances that they could form those predictions.
Moreover, the actual outcomes were more in keeping with what a reasoned assessment, which was uncontaminated by neo-liberal ideology, would have suggested. Cuts that deep and that quick were always going to devastate both public and private spending and lead to a depression with very high unemployment.
In 2012, the IMF provided some insight into their own criminal negligence. In its October 2012 World Economic Outlook, the IMF admitted that its past recommendations for fiscal austerity in Europe, which conditioned, for example, the harsh terms embedded in the Greek bailout packages, were based on ‘modelling errors’.
They admitted “that actual fiscal multipliers have been larger than forecasters assumed”
Fiscal multipliers tell us what will happen to total spending (both public and private together) for every extra $1 of public spending.
As a matter of ideology, the IMF had assumed that they were very low (below 1) so that cutting public spending would actually lead to higher total spending.
In October 2012, they admitted that the ‘multipliers’ were well in excess of 1, which means that if the government cuts spending by 1 euro, the total decline in spending and output will be well in excess of that.
The reality told us that would be the case. More credible economic analysis told us that would be the case.
But the neo-liberal biases in the IMF models simply refused to allow for that outcome because it would have undermined their ideologically motivated desire to cut deficits and reduce the size of government.
So the combination of the IMF incompetence and the usual European Groupthink justified policies that then led to millions of people unnecessarily losing their jobs.
The current ‘negotiations’ continue that ideological denial.
In June 2013, the IMF released a suite of new reports on Greece. At the press conference accompanying the release, the head of the IMF Greek Mission Poul Thomsen was asked “Is it true that the IMF admits mistakes on the Greek bailout?”
Sure. There is in this bundle of papers, there is a discussion of the past and, in the context of the Article IV Consultation, a full report … And, sure, in reviewing what we have done the whole time, there are certainly things we could have done differently. We already had that debate six months ago on these multipliers and that if we should do it again, we would not use the same multipliers.
So which multipliers are they using now to justify the on-going austerity being imposed and the forecasts of relatively robust growth as a result?
In 2013, the IMF released a report – Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement – to accompany that Press Conference.[Reference: International Monetary Fund (IMF) (2013c) ‘Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement’, IMF Country Report No. 13/156, June]
They admitted that they had altered its own rules in order to provide the bailout. It was clear to them from the outset that the austerity program would not reduce Greece’s public debt ratio, which was one of four criteria that the IMF dictate must be satisfied in order for them to provide funding.
They proceeded not as a result of any concern for what the austerity would do for Greece, but:
… because of the fear that spillovers from Greece would threaten the euro area and the global economy
Defending the interests of international capital has always been a priority of the IMF even if the welfare of ordinary citizens is compromised.
Extraordinarily, the IMF also admitted that in retrospect, Greece actually failed to meet three of the four criteria for funding, which indicates how poor the initial assessment was, in part, because the “negotiations took place in a very short period of time”.
The IMF has a history of parachuting officials into nations who within a day or so come up with radical structural adjustment programs, which ravage the local economy.
The neo-liberal free market paradigm is seen as being a ‘one size fits all’ solution, irrespective of the circumstances.
Finally, the IMF’s huge forecasting errors in relation to Greece were not one-off incidents.
While forecasting errors are a fact of life, the IMF and other major neo-liberal inspired organisations produce systematic errors, that is, they consistently make the same errors, which are easily traced to the underlying ideological biases which shape the way they create their economic models.
The IMF typically overstates the benefits of austerity and understates the costs. Further, it also overstates the inflationary impact of fiscal deficits.
Each systematic error reinforces its free market approach. Yet each systematic error also demonstrates the poverty of that approach.
In the case of Greece, the damage caused by the IMF malpractice has been massive. Some IMF officials, at the very least, should have gone to prison given the damage the institution caused, which dwarfs that of fraudsters such as Bernie Madoff who was sentenced to 150 years imprisonment for his criminality.
The IMF is a sham and no-one should take their economic ‘analysis’ seriously. They are an ideological bully organisation that is intent on imposing a free market, small government order on all the nations that it interacts with.
The Greek government should withdraw from any discussions with them.
Music – more from Ernest Ranglin and Monty Alexander
And to calm us all down again after all that, this is what I have been listening to today while working. Jamaican reggae jazz greats Monty Alexander (piano) and Ernest Ranglin (guitar) playing – Stalag 17.
It appeared on their 2004 album Rocksteady (Telarc Records), which was recorded live (one take) in the studio.
This is another of my favourite albums. There are many of those (favourites).
The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.