Must-Read: Simon Wren-Lewis: Greece Under Troika Rule

Must-Read: Simon Wren-Lewis: Greece Under Troika Rule: “‘The repayment of foreign loans and the return to stable currencies…

…were recognized as the touchstones of rationality in politics; and no private suffering, no infringement of sovereignty was considered too great a sacrifice for the recovery of monetary integrity. The privations of the unemployed made jobless by deflation; the destitution of public servants dismissed without a pittance; even the relinquishment of national rights and the loss of constitutional liberties were judged a fair price to pay for the fulfilment of the requirements of sound budgets and sound currencies, these a priori of economic liberalism. — Karl Polanyi (1944), ‘The Great Transformation’ (p142)

This quote (HT Jeremy Smith) could almost be written today about Greece. I had once thought that the lessons of the interwar period and Great Depression had been well learnt, but 2010 austerity showed that was wrong…. The Greek government borrowed too much… the scale… meant default was pretty inevitable. But Eurozone leaders, worried about their banking system (which held a lot of Greek debt), first postponed default and then made it partial. The real ‘bailing out’ was for the European banks and others who had lent to the Greek government…. Nothing… obliged Eurozone leaders to lend their voters money to bail out these creditors…. If European leaders felt their banking systems needed support, they could have done this directly….

They convinced themselves that Greece could pay them back. It was a mistake they will do anything to avoid admitting. To try and ensure they got their money back, they along with the IMF effectively took over the running of the Greek economy. The result has been a complete disaster. The amount of austerity imposed caused great hardship, and crashed the economy…. The Troika wants 3.5% primary surpluses by 2018… to start getting their money back sooner… an absurd demand…. Right now Greece needs more aggregate demand not structural reform, yet the Troika insists on taking more demand out of the economy….

Despite Martin Sandbu’s optimism, the recent deal is essentially more of the same. The IMF, which knows it makes no sense to ‘extend and pretend’, has again capitulated. The reaction to the IMF’s paper on neoliberalism has generally missed the key point. It is not fanciful to believe that the paper is directed at those within the IMF like Poul Thomsen, the head of their European department. Falling GDP will continue to be blamed on the Greek government, even without its former finance minister. Of course one day the Greek economy will recover, just as the Irish famine came to an end. But history, as taught in Britain as well as Ireland, does not remember the British troops guarding the shipments of grain leaving Ireland during the famine as heroic upholders of the rules of law and contract. Nor will it do the same for the members of the Troika that keep Greece in poverty.