Greece, debt relief, philosophy and…cricket

To paraphrase CLR James badly, sometimes people who only cricket know, know a whole lot more.

After his astonishing 10-wicket haul against Sri Lanka in the Test match at Headingley, Jimmy Anderson spotted the reason that he and Stuart Broad had finally achieved success at the Yorkshire ground.

“Me and Stuart have just had a chat and said it has taken us nine years to realise we are bowling at the wrong ends here,” said Anderson.

This may be the cricketers’ version of Einstein’s alleged definition of insanity as doing the same thing over and over again and expecting different results.

Observers of Greece’s financial crisis and the European Union-led response to it may hear echoes of both the eminent scientist and the great cricketer.

Since it first emerged almost six years ago that Greek politicians had committed financial jiggery-pokery that had left their proud country on the brink of default, the response of the rest of Europe has been clear: the Greeks must pay for the consequences through austerity.

The EU, the European Central Bank and the IMF have handed over a total of €442bn to bailout the banks and investors, while Greeks have faced no fewer than eight austerity packages that have triggered protests and riots.

The country has been in recession since 2009, one in four Greeks is jobless, household income has collapsed, the suicide rate has increased and, most shockingly, Evangelismos, Greece’s largest public hospital located in central Athens, is facing a serious shortage in medicines.

The most recent bailout package was based on a condition that Greece achieves a primary surplus - where the government raises more money in tax than it spends on services, excluding debt interest - of 3.5% of its annual economic output.

As the International Monetary Fund said in an unusually forthright and critical assessment that it controversially decided to make public, Greece faced a “daunting” challenge to meet that because:

  • Revenues were likely to fall rather than rise a share of GDP

  • Spending pressures were likely to get worse particularly healthcare for its aging population

  • The pension system was unaffordable and unsustainable

  • Tax collection rates have been declining because of the “skewed” system

  • A 3.5% surplus could not be achieved without double-digit inflation for “several decades”.

Its conclusion was clear and unequivocal: “upfront [and] unconditional” debt relief for Greece before the current package expires in 2017.

But ahead of the 24 May meeting of the Eurogroup finance ministers and EU commissioners in Brussels to approve another tranche of the loan, Germany had made it clear that debt relief should not be on the table.  

little has been achieved other than the punishment of the Greek population

Finance minister Wolfgang Schäuble insisted that any firm commitments on euro zone debt that Greece does not have to start servicing until 2023 would remove the incentive to continue with reforms.

In the end the finance ministers unlocked the second tranche of €10.3bn, saying that Greece had implemented all the economic reforms required, and so avoided defaulting on debt repayments to the IMF and the ECB.

Schäuble, who faces election in 2017, had hinted that the issue of debt relief will be “for those who the German people have chosen in 2017”. In other words debt relief, like chastity and continence, is right…but not now.

Thus ministers at silly o’clock on 25 May agreed that the 3.5% surplus target would be set until 2018 at which point debt relief would be considered

It is not a surprise that the Eurogroup, led by Germany, have continued with the same cruel medicine even in the face of opposition by the IMF. But it is still wrong.

Full debt relief is the correct moral and response to a country that is saddled by unrepayable debt, just as it was in 1999 when the IMF and World Bank agreed the Highly Indebted Poor Countries (HIPC) initiative that provided $76bn of debt service relief to 36 countries, of which 30 were in Africa.

Furthermore 90% of the loans from the IMF, EU and ECB to Greece have actually been used to bailout European banks rather than relieving conditions for the ordinary people. Oh, and the Allies wrote off the entire German public debt notched up by the Nazis (670% of its GDP) during the Third Reich.

On a yet sourer note, and bearing in mind the near victory of the far-right politician Norbert Hofer in the Austrian presidential election, the most likely winners from austerity will be populist anti-euro and anti-EU parties.

The experience of six years of recession and eight crushing rounds of austerity shows that little has been achieved other than the punishment of the Greek population. It is hard to see why demanding further austerity will have a different outcome.

Greece’s debt is predicted to reach more than €333bn this year, around 180% of its annual economic output. When he wasn’t writing about cricket CLR James analysed issues of race, class and empire.

He once wrote: “The patience and forbearance of the poor are among the strongest bulwarks of the rich.” For the last six years that has been true for Greece. But may be it’s time to start bowling from the other end of the wicket.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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