After all the hoopla last year with the rise and fall of Syriza one’s attention span strays from what is happening in Greece at present and how it demonstrates the continued (and permanent) failure of the Eurozone. We also become inured to badness after badness is normalised. I was reminded of the depth of the malaise in that nation last week when I was in Kansas City. I won’t disclose confidences but an influential person (in the Greek context) I spoke to now regard their previous support for remaining within the Eurozone as a mistake and they consider my assessment of the situation (which they opposed at the time) to be closer to reality. That was an interesting conversation and credit to them for being able to recognise an error of judgement. I was also reminded of the absurdity of the Eurozone when the IMF released its latest – Greece: Staff Concluding Statement of the 2016 Article IV Mission (September 23, 2016). This is normalisation of badness in bold! The current thinking is that the Greek unemployment rate will remain in double figures until at least 2050, that business investment has collapsed, real GDP is around 27 per cent below its pre-GFC level – and – more significant and accelerated austerity is required. If an organisation can exhibit psychopathy then the IMF has it!
On June 22, 2016, there was a press report – Greek Labour Minister Katrougalos says IMF wants ‘blood’ – where the Labour Minister said that the:
IMF would make harsh demands on labour matters during the new round of negotiations scheduled for next Autumn … Katrougalos said that no matter what these demands entailed the Greek government would not cave in. ‘We will not offer blood on the labour issues’, he said. He went on to say that the Greek government was not interested in making any concessions to the IMF if that meant backtracking on fundamental principles and commitments to protect workers’ wages … He criticised the IMF’s policies as leading to a complete impoverishment in Greece.
The Labour Minister had earlier (May 29, 2016) admitted that the policies adopted by Syriza under pressure from the Troika amounted to a “concentrated and distilled form of neoliberalism adopted during the past in Pinochet’s Chile” (Source).
The IMF has also been calling for “massive redundancies” in the Greek public service (Source) and the Greek government had agreed to the so-called “automatic cut” in pensions which would be “announced every April 30 and would last for 3 years”.
So unlike the usual expectation where citizens look forward at some point in the year to the automatic rise in pensions (usually for indexation), the Greek government has conspired with the Troika to have an automatic cut. Like it or lump it! Extraordinary really.
Minister Katrougalos isn’t taking his foot of the pedal in terms of his on-going verbal war with the IMF. In the Reuters report (September 14, 2016) – Greece says to stand up to IMF on demands for labor reform – he told the press that:
Greece will tell its creditors it cannot comply with labor reforms demanded by the International Monetary Fund as a condition of its support for the country’s third bailout …
The IMF have demanded further wage cuts, cuts to the minimum wage and further relaxation of dismissal protections and a virtual ban on industrial action.
The Labour Minister told the press:
I insist that the IMF is an extreme player in this negotiation because its position does not reflect the European acquis … Those who want to save Europe can no longer implement such practices.
At a press conference (September 15, 2016), the week before the Article IV process began in Athens and a day after Mr Katrougalos’s latest anti-IMF tirade, the Director of IMF Communications (the spin doctor), one Gerry Rice gave a press conference to provide an update on the meetings with the Troika about the ESM Program and Greece.
The – Transcript – records the following interchange:
QUESTIONER: Okay. So yesterday the Greek Minister of Labor said that the Greek government cannot accept what you guys suggest regarding the labor market reform.
MR. RICE: You guys?
QUESTIONER: The IMF. So he also described the distance between the two sides huge, and he described the IMF as an extreme player. How do you comment on that?
MR. RICE: I haven’t seen those comments actually, so I don’t have any comment on them …
QUESTIONER: Can you tell us, Gerry, what is your position on the labor market? I mean, do you agree with the government?
MR. RICE: You know, it’s something that’s going to be under discussion, in the context of the ESM review, and I’m sure that it will also be something that will be looked at broadly in the context of the Article IV …
The IMF describe its Article IV process under – Surveillance – whereby:
… an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.
The IMF also tell us that “The consultations are known as “Article IV consultations” because they are required by Article IV of the IMF’s Articles of Agreement.
If you read the Articles of Agreement of the International Monetary Fund – which were adopted at the “United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 22, 1944” (and have been revised several times since) you will see that Article IV: Obligations Regarding Exchange Arrangements’ relates to the responsibility of each member state to “to assure orderly exchange arrangements and to promote a stable system of exchange rates”.
The original intent of the Article IV process was to ensure that the fixed exchange rate system, which gave birth to the IMF as the overseer, would deliver stable outcomes. The IMF was charged with providing sufficient foreign reserves to help nations who were struggling with current account deficits (and hence experiencing downward pressure on their parities).
In this context, the current Article IV processes are ludicrous given that the Eurozone nations do not have an “exchange rate” that they manage through central bank foreign exchange intervention. They surrendered their exchange rate flexibility when they joined the Eurozone.
Further, the intent of the Article IV process was never to turn the IMF into a ‘big brother-type’ moral arbiter and front-line attack dog for big capital and the ruling ideology. It was more of a functional role – to keep the fixed exchange rate system that affected all participating nations stable.
However, in an era of flexible exchange rate, the Article IV process has become so bastardised that it bears little familiarity with the original intent.
Now the surveillance is of the type that the old East German Stasi or the old German Sicherheitsdienst would be proud to be part of. It is bullying, issues threats of insolvency and economic disaster, invokes fear, and tramples on democratic freedoms.
All the characteristics of what Noam Chomsky considers to be the hallmarks of terrorism which he notes is defined in the US army manual as “the calculated use of violence or threat of violence to attain goals that are political, religious, or ideological in nature. This is done through intimidation, coercion, or instilling fear.”
That is what the Article IV process has become in this neo-liberal epoch.
And the IMF feels it is now just normal communication to admit in the – Greece: Staff Concluding Statement of the 2016 Article IV Mission – released on September 23, 2016 that:
Looking forward, growth prospects remain weak and subject to high downside risks, and unemployment is expected to stay in the double digits until the middle of the century.
For F*CK sake, we are only in 2016!
The IMF solution is to “pursue deep reforms in key areas” – meaning the sort of steamroller cuts and retrenchment of social and labour protections that the Labour Minister feared.
The IMF wants “a significant deepening and acceleration” of the neo-liberal steamroller. Don’t kick a ‘man’ when he is down, used to be the norm for people who wanted to be considered civilised.
The IMF makes an art form of going harder the worse the situation gets.
They want cuts to the “unaffordable pension spending” and other areas while admitting that the cuts to date have left Greece with:
… hospitals lacking syringes and public busses immobilized by lacking parts.
They “welcome” the recent “1 percent of GDP” equivalent cuts to pension but the cuts “are well short of what is needed”.
They want tax hikes on workers (through the “lowering the generous income tax credit”).
They note that the banks are now holding “Non-performing loans … close to 50 per cent of total loans, the second highest in the euro-area …”
A “weak payment culture” is cited as a reason and so the Greek government is implored to “further strengthen and fully implement the legal tools for debt restructuring to restore the payment culture” – read: seize assets from the unemployed who cannot service loans taken out when they had jobs.
And the IMF claim the “should relax the …[capital] … controls rapidly” – read: so the rich can get more of their assets out of the nation.
The IMF also note that:
Despite successive attempts to address its weak institutions, Greece has not managed to regain competitiveness, with productivity growth among the lowest in the euro-area, investment down by more than 60 percent, and export growth lagging peers.
The burden of the austerity has “been borne largely by wage earners” – the so-called internal devaluations – read: trash worker entitlements and wage prospects – and surprise surprise – haven’t worked!
But the IMF is not relenting – “it would be wrong to conclude that labor market reforms should be reversed” – no that might stimulate domestic demand a bit and provide some incentive for business firms to invest in new productive capital.
That would be too much for the IMF to conceive! They want total capitulation of every sector within the nation.
The data is a pretty convincing witness to the folly of the Eurozone, which was built on claims of convergence to better times across all Member States.
Nothing could be further from the truth. Even the so-called powerhouse nations such as Germany does not look in great shape. But nations such as Greece are in disastrous straits.
The Hellenic Statistical Authority El.Stat last week (September 22, 2016) published the latest – Job Vacancies – data up to the June-quarter 2016.
We learn that:
The number of job vacancies in the 2nd quarter 2016 has recorded a decrease of 10.7% in comparison with the 2nd quarter 2015 (15,178 and 17,000, correspondingly), while the corresponding number of job vacancies in the 2nd quarter 2015 had recorded a decrease of 8.6% in comparison with the 2nd quarter 2014 (17,000 and 18,596, correspondingly).
In the second-quarter 2009, there were 45,886 job vacancies immediately available to be filled. In the June-quarter 2016, the number was 15,178.
Seven years of devastation at the hands of the Troika will do that.
This data is no surprise (no matter how devastating it is) given the drivers. The next graph shows real GDP indexes (March 2008 = 100) for various nations within the Eurozone and the currency union in total.
The sample is from March-quarter 2008 to the June-quarter 2016 (latest data). A change in the index from quarter to quarter signifies growth (or contraction).
Germany and France lead the way although their growth over the 8 or so years shown is pathetic – 7.2 per cent overall for Germany and 4 per cent overall for France.
The Eurozone has grown by only 1.4 per cent in the 34 quarters shown. Barely at all.
Then we see Spain (-2.2 per cent), Portugal (-5.6 per cent) and Italy (-8.4 per cent) form the next group. They have still not regained the level of output that they were achieving at the outset of the GFC.
But Greece has now contracted by 26.9 per cent from its March-quarter 2008 level and there appears no end in sight. It has sort of entered a period of stagnation – no Depression – and the policy settings in place are holding it there.
Years of unnecessary suffering for its people.
The next graph shows the evolution of the unemployment rate (%) from January 2008 to July 2016 for the same set of countries within the Eurozone.
While the Eurozone as a whole still endures unemployment above 10 per cent (10.1), Greece has been stuck around the mid-20s for some years now.
The IMF thinks it will not get below 10 per cent until 2050.
I wouldn’t trust the IMF’s judgement. Appaling as it is, it is likely to be an overestimate of the fall in Greek unemployment over the next decades.
There is little to stimulate growth in that nation. Sure enough, the labour force contraction through net outmigration and ageing will reduce the unemployment rate.
But that just leaves the nation in a geriatric state still in Depression.
I have previously analysed the abysmal forecasting performance of the IMF.
For example, please read my blogs – The case to defund the Fund and Governments that deliberately undermine their economies – for more discussion on this point.
Also search, if you are interested, through the posts at the – IMF – category for all my posts in this regard.
In the latest WEO forecasts (April 2016), the IMF predicted that:
|Real GDP growth (% pa)||2.662||3.106||2.792||2.361||1.533|
|Unemployment rate (%)||25.028||23.358||21.677||18.856||18.000|
But these two graphs will let you see how poorly the IMF predictions are.
The first shows the evolution of its predictions in each April World Economic Outlook release from April 2010 for real GDP growth in Greece.
The black thick line is the actual outcome in each of the years.
Each WEO predicts out several years (as the Table above shows for the April 2016 WEO). But even in the light of catastrophic forecasting errors the IMF fails to make significant adjustments to their forecasting approach.
They also have admitted using spending multipliers that predicted growth in the face of spending cuts whereas they now acknowledge that the actual multipliers would lead to the conclusion that austerity kills growth.
This admission was revealed in October 2012 – see blog – The culpability lies elsewhere … always!.
But they are still bullying Greece into more austerity.
The second graph is even more stark. It shows the evolution of its predictions in each April World Economic Outlook release from April 2010 for Greek unemployment.
Between 2010 and 2012, as the IMF and the Troika were inflicting austerity on Greece they consistently failed (by a huge factor) to realise what damage they were doing.
Their more recent forecasts have clearly been re-calibrated at the higher level but even as late as 2015, they were predicting a steady fall to around the same levels by 2020 that they thought would be achieved by now back in 2011.
Their most recent forecasts are more dire for sure but probably optimistic.
I haven’t written about Greece (or the Eurozone) for a while – it is depressing thinking about it really and I cannot imagine how the citizens in Greece are dealing with the planned destruction of their prosperity by highly paid officials in Brussels, Frankfurt and, particularly Washington.
The scale of the destruction is beyond belief really and constitutes in my non-legal brain a crime against humanity.
Someone in the IMF and Brussels should be paying for the professional incompetence that has created this human disaster.
Advertising – My Eurozone book
My current book – Eurozone Dystopia – Groupthink and Denial on a Grand Scale – is published by Edward Elgar.
I am able to offer a Special 35 per cent discount to readers to reduce the price of the hard cover version of the book.
Please go to the – Elgar on-line shop and use the Discount Code VIP35.
It is also now available in much cheaper paperback form for £32.00.
Also the eBook is available 36.27 US dollars from Google Play or 61.45 Australian dollars from eBooks.com.
That is enough for today!
(c) Copyright 2016 William Mitchell. All Rights Reserved.