Let’s recap where we are. A country that can’t pay back what it owes, and that has shrunk by nearly a third, is to be given more money on the condition that it shrinks its economy still further. On the other side, the creditors, those who are so concerned about getting their money back, are committed to giving that country another €86 billion to pay the debts they have already accrued, thereby adding massively to a debt pile that will never be repaid.
The IMF eventually declares what its own research arm has been saying for three years, that the whole thing unsustainable, but refuses to do anything positive about it. Meanwhile, deprived of the ability to pass any legislation without the approval of ‘the institutions’, the Greek government sits in a five-month limbo while the economy shrinks. It is then roundly blamed for a decline that has been ongoing for five years.
“Everyone knows Greece is bankrupt but no one wants blood on their hands for chucking them out of the eurozone”
The European Central Bank, whose main mandate is to promote financial stability in the eurozone and ensure the proper running of the European payments system, has been creating financial instability in the area by systematically choking off liquidity to the Greek banking system and bunging up its payments system. The end result of which is, according to the IMF, “a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA (debt sustainability analysis)”. Meanwhile, the man who rode a 61% referendum vote to reject austerity is now trying to implement an agreement that is worse than anything he could have signed in the prior five months.
Now, forget for a moment how utterly absurd all this is. Discount for now quite how provisions such as the deregulation of the Greek bakery sector (really, it’s in there) and a rise in regressive taxes will produce a turnaround in growth and just say ‘it’s a deal’. Prime Minister Tsipras has gotten these things the creditors want through the Greek Parliament, so now what?
The end result of this deal is that the fifth-oldest economy in the world will end up with as much debt per capita as Japan, with almost none of it held domestically. As a result, on current assumptions this demand-shocked and credit-starved economy where almost 60% of its youth are unemployed will grow at 25% above its historical average for the next forty years while running a budget surplus of 3.5%, the proceeds of which will be handed over to foreigners and not go into investment.
Now, given that the people involved in this sad story are not idiots, why are they staging such a grand production of the Theatre of the Absurd? The answer is quite simple. Indeed, given that no one can seriously expect what is demanded of Greece to ever work, it’s the only answer possible. That is, everyone knows Greece is bankrupt but no one wants blood on their hands for chucking them out of the eurozone. If you put another 86 billion in now, you will need another 100 billion in a year’s time. Only a complete debt moratorium and an end to austerity would allow the Greek economy to produce sufficient investment to impact GPD growth such that the economy grows faster than the debt stock, and that’s never going to happen.
So what we have now is a game of what Barrie Wilkinson correctly calls “nuclear hot potatoes”, where all the offers that are made are made to be rejected. But they can’t be rejected by any side for that risks being blamed for the inevitable Grexit. So absurd offer and ever-more-absurd counter-offer are passed around hoping that the other side pulls the trigger first. Meanwhile, Greece collapses, Europe stagnates and the rest of the world looks on wondering whatever happened to Europe. Welcome to the Theatre of the Absurd. Sadly, it’s the only play in town, and it’s closing down fast.
IMAGE CREDIT: CC/FLICKR - Jubilee Debt Campaign