Greek debt crisis: A tale of ritual humiliation

Mark Steel in The Independent

What a relief that the Greeks have finally seen sense, and agreed to Angela Merkel’s demand that their Prime Minister Alexis Tsipras must scrub Berlin with a dishcloth, and crawl along the banks of the Rhine in a thong barking like a dog.

The week before he’d agreed to dress as a fairy and sing “The Good Ship Lollipop” while German children poked him with stinging nettles, but now that isn’t enough. So he has to accept even more measures essential to stabilising the Greek economy, such as being hosed down with kebab fat while naming the German squad that won the 1954 World Cup.

Otherwise, as EU leaders made clear, there would be no way Greece could stay inside the solar system; they’d have to orbit a different star in a faraway galaxy, which could be extremely damaging to the Greek tourist industry.

Instead of inviting further chaos by leaving Greece in the hands of the Greeks, their finances have been handed over entirely to the only people we can trust to behave responsibly at all times: the banks. Thank the Lord we’ve got at least one institution that has never behaved irresponsibly or recklessly in any way.

Perhaps the Greeks should have gone to Brussels and said they were rebranding Greece, so it’s no longer a country, but a bank. They’d have been bailed out by lunch and given a free set of steak knives as an extra gift. Instead they’ve got to sell off their entire country. By Christmas you’ll be able to buy a family ticket for 300 quid to visit the Domino’s Parthenon, where you can watch a parade of philosophers dressed as your favourite pizzas, with Pythagoras pepperoni proving a particular favourite, then scream your way down the Acropolis on a log flume.

One of the main demands in the final deal is that the Greek state must sell off €50bn-worth of its assets, which amounts to everything it has. This is part of the drive to make the economy stable and efficient. This works as long as you assume privatisation unarguably makes an industry more efficient. Obviously there are examples such as the railways in Britain, where privatisation has resulted in cheap reliable trains on which you can always get a seat, it’s easy to buy tickets across different rail networks, and customers are even offered delightful unscheduled 40-minute stops outside London Bridge station to give you the opportunity to paint the view of a gasworks in Bermondsey.

The demands placed on Greece are so extreme that even the International Monetary Fund has declared them “unsustainable”. The IMF is the body that has spent 50 years forcing countries such as Tanzania and Haiti to cut wages and sell off its possessions, in return for loans it needs so it can pay off the interest on the last lot of money it borrowed (from the IMF). So when it says the demands on Greece are too harsh, it’s like making the leader of Isis say, “Steady on, that’s a bit too Islamic”.

Still, someone has to tell the Greeks they can’t expect to carry on getting something for nothing. And the European Central Bank and national central banks – who, according to the Jubilee Debt Campaign, “stand to make between €10bn and €22bn out of Greek repayments” – are exactly the right people to deliver that stern but fair message.

Christine Lagarde, managing director of the IMF, is paid a salary of €550,000 a year, and by special arrangement pays no tax on that whatsoever. So she’s certainly the right person to lecture the Greeks, because she’s never been behind on her tax payments once. Every month she dutifully pays her nothing bang on time; she understands the importance of behaving responsibly with public money.

The most perplexing part of this story is that, a few days ago, it seemed as if Alexis Tsipras and his party, Syriza, were set to resist the orders being thrown at them, especially as they’d gone to the trouble of winning a referendum on whether to accept the EU demands. I suppose Tsipras thought that when the majority of Greeks voted against, it was because they felt those demands weren’t harsh enough, and they deserved to be punished much more severely as they’d all been very naughty.

Because Tsipras went into negotiations making it clear he was desperate to keep Greece in the eurozone, the EU could demand whatever it liked, knowing he’d accept anything rather than abandon the euro.

That sounds like going into a car showroom and saying, “I desperately need a car right now and I’ll have anything rather than leave without one”. A salesman could say, “We’ve only got this one, it’s got no engine and the windscreen’s made of wood and it pongs as a family of weasels live on the back seat and the bonnet’s on fire, it’s £10,000”, and you’d have no choice but to take it.

But maybe he did have a choice, to tell the banks they’ve made plenty out of Greece as it is and so, on balance, the elected government had decided to go along with what the Greeks voted for twice in a few months – wasting their money on schools and old people in villages, rather than do the sensible thing and hand over every coin as interest payments to institutions such as Goldman Sachs.

They’d have been kicked out of the eurozone, and probably out of Uefa and the Eurovision Song Contest, and scratched off the Inter-rail map too. But they’d have been a little beacon for everyone across Europe who feels the banks aren’t acting entirely in our interests, probably enough people to worry Angela Merkel just a bit.

IMF admits: we failed to realise the damage austerity would do to Greece

Athens officials react to report with glee, saying it confirms that the price extracted for country's bailout package was too high

• Larry Elliott, Phillip Inman and Helena Smith in Athens
• The Guardian, Wednesday 5 June 2013 23.05 BST

IMF chief Christine Lagarde. Greek media recently quoted her describing 2011 as a 'lost year', partly because of IMF mistakes. Photograph: Stephane Mahe/Reuters

The International Monetary Fund admitted it had failed to realise the damage austerity would do to Greece as the Washington-based organisation catalogued mistakes made during the bailout of the stricken eurozone country.

In an assessment of the rescue conducted jointly with the European Central Bank (ECB) and the European commission, the IMF said it had been forced to override its normal rules for providing financial assistance in order to put money into Greece.

Also read: 1.  The IMF should be on trial

2.  Watch out, George Osborne: Adam Smith, Karl Marx and even the IMF are after you
3. Beware the nostrums of economists
4. Austerity has never worked

Fund officials had severe doubts about whether Greece's debt would be sustainable even after the first bailout was provided in May 2010 and only agreed to the plan because of fears of contagion.

While it succeeded in keeping Greece in the eurozone, the report admitted the bailout included notable failures.

"Market confidence was not restored, the banking system lost 30% of its deposits and the economy encountered a much deeper than expected recession with exceptionally high unemployment."

In Athens, officials reacted with barely disguised glee to the report, saying it confirmed that the price exacted for the €110bn (£93bn) emergency package was too high for a country beset by massive debts, tax evasion and a large black economy."

Under the weight of such measures – applied across the board and hitting the poorest hardest – the economy, they said, was always bound to dive into an economic death spiral.

"For too long they [troika officials] refused to accept that the programme was simply off-target by hiding behind our failure to implement structural reforms," said one insider. "Now that reforms are being applied they've had to accept the bitter truth."

The IMF said: "The Fund approved an exceptionally large loan to Greece under an stand-by agreement in May 2010 despite having considerable misgivings about Greece's debt sustainability. The decision required the Fund to depart from its established rules on exceptional access. However, Greece came late to the Fund and the time available to negotiate the programme was short."

But having agreed that there were exceptional circumstances that warranted the biggest bailout in the Fund's history, officials were taken aback by the much bigger than expected slump in the Greek economy. The country is now in its fifth year of recession and the economy has contracted by 17%. The IMF thought it would contract by just 5.5%.

In the evaluation of the package provided in 2010, the IMF said: "Given the danger of contagion, the report judges the programme to have been a necessity, even though the Fund had misgivings about debt sustainability.

"There was, however, a tension between the need to support Greece and the concern that debt was not sustainable with high probability (a condition for exceptional access).

"In response, the exceptional access criterion was amended to lower the bar for debt sustainability in systemic cases. The baseline still showed debt to be sustainable, as is required for all Fund programmes."

In the event, the report added, the Fund was open to criticism for making economic projections that were too optimistic."

While the report says a deep recession was unavoidable, it is critical of senior officials in Brussels and European capitals who said Greece would fare better outside the euro. Concerns that Greece could be ejected from the euro and return to the drachma intensified an already febrile situation.

"Confidence was also badly affected by domestic social and political turmoil and talk of a Greek exit from the euro by European policymakers," it said.

Brussels also struggled to co-ordinate its policies with the ECB in Frankfurt, according to the report.

"The Fund made decisions in a structured fashion, while decision-making in the eurozone spanned heads of state and multiple agencies and was more fragmented."

The Greek media recently quoted IMF managing director Christine Lagarde describing 2011 as a "lost year" partly because of miscalculations by the EU and IMF.

The authoritative Kathimerini newspaper said the report identified a number of "mistakes" including the failure of creditors to agree to a restructuring of Greece's debt burden earlier – a failure that had had a disastrous effect on its macroeconomic assumptions.

"From what we understand the IMF singles out the EU for criticism in its handling of the problem more than anything else," said one well-placed official at the Greek finance ministry.

He added: "But acknowledgement of these mistakes will help us. It has already helped cut some slack and it will help us get what we really need which is a haircut on our debt next year."