Home > Boneheaded stupidity, Economic policy > The IMF: An inexcusable, incorrigible failure

The IMF: An inexcusable, incorrigible failure

July 4th, 2015

Chris Berrtram at Crooked Timber has already pointed out the failure of the core European institutions in their response to the global financial crisis. One excuse that can be made for these institutions is that they are still in the process of development, and were ill-prepared, intellectually and institutionally, for an event so far outside their experience. The ECB and EC developed in a period when controlling inflation and stabilizing government debt were the key imperatives, and they responded to the crisis accordingly.

No such excuse can be made for the third member of the Troika, the International Monetary Fund. The IMF has understood from the start that the austerity policies it has imposed are economically unsound and a repetition of past failures. And yet it has been unwilling and unable to do anything else.

The Asian financial crisis of the late 1990s was a near-perfect dry run for the GFC. Speculation arising from rapidly expanding and weakly regulated financial systems produced a string of failures and capital flight in countries that had previously been regarded as having ‘miracle’ economies. Governments inevitably ran into financial difficulties. The IMF, used to dealing with debt crises arising from public profligacy, came in with its standard package of ‘reform’ measures, privatisation, spending cuts and so on. These measures were totally inappropriate to deal with a crisis originating in the private sector, and only made matters worse. The most successful performer in the region was Malaysia where the government ignored the IMF, and imposed capital controls. After the event, everyone agreed that the IMF had learned its lesson, and would handle things differently in future. As the GFC has shown, the truth is that the IMF has learned nothing and forgotten nothing.

The institutional failure is made worse by the fact that the IMF’s Research Department, arguably the strongest group of macroeconomic policy researchers anywhere, got their analysis right almost from the start. In 2010, the IMF chief economist Olivier Blanchard (with two colleagues) recognising the limitations of a low inflation policy, proposed raising inflation targets to 4 per cent. In the same year, the IMF World Economic Outlook presented a refutation of the idea of “expansionary austerity”, based on the now-discredited work of Alesina and Ardagna. Subsequent IMF research has reconfirmed the Keynesian view that contractionary fiscal policy will worsen a depression.

I don’t have any insight into the factors that cause the IMF to push for austerity in season and out[^1]. In particular, I’m not clear whether the problems arise from internal dynamics or from external pressures. But I can’t see any prospect of change, or any promising program for reform. The only policy conclusion I can draw is that, given the inevitability of a disastrous IMF response, financial system failures are even more dangerous than they would be otherwise. The corollary would appear to be financial repression of the type practised in the Bretton Woods era, with such success that the IMF never had to handle a crisis originating in the financial sector

[^1]: I should note that whereas I assumed that the combination of past experience and analysis would lead the IMF to break with austerity in the Greek crisis, Daniel Davies pointed out last time we discussed this that the IMF was at least as hardline as the EC and ECB.

  1. Newtownian
    July 4th, 2015 at 15:58 | #1

    Wasnt economics once dominated by the concept of ‘Political Economy’ https://en.wikipedia.org/wiki/Political_economy which wasnt just about Marxism?

    How else is one to explain the lack of linkage between IMF research findings and its actions in practice. In all this it is interesting that the IMF is not managed by a lawyer/politician of the right who cut her teeth in Chicago headquartered law firm handling ‘labour’ cases (like our own Peter Costello?!).

    Me thinks this is just plain old class warfare continued.

  2. Newtownian
    July 4th, 2015 at 16:14 | #2

    So no wonder the IMF are so antagonistic toward Syriza. They thought they and their allies had either slain the annoying socialist monster, or as with just about every social democratic party in the West including PASOK, turned them into pets who could amuse with useful tricks but no longer bother the grownups.

    Now Syriza, like with Allende, and arguably one E. G. Whitlam too in another world, that if you kick the populace too hard they will bite back with unpredictable consequences.

    What stinks most in all this is that the least priveleged Greeks (like their Spanish, Irish and Portugese) bear the brunt of austerity while the likes of Lagarde stick their arrogantly to ideals of thrift while they are on tax free salaries plus junckets. But you never hear a peap from this vile class about the real human cost.

    (ps apologies for bad presubmission editing).

  3. Peter Chapman
    July 4th, 2015 at 17:40 | #3

    So much is being written about who is to blame for the Greek economic crisis, and finding an answer IS important. Discovering whether ANY of the parties will “learn their lesson” is equally important. Otherwise we will all be doomed to suffer the repeat of this sorry history. But in my view whatever the outcome of the Greek referendum, and whatever the fate of the present Greek government (and there are powerful forces wanting to blame Syriza and teach it a lesson), the citizens of Greece are in for a rough time in years to come. More austerity = more pain in terms of unemployment, scarcity and poverty. Default and Grexit = more pain, also. As Amartya Sen and others have pointed out, this is a failure not only of economic policy, but also of politics and the institutions of a functioning democracy… allowing economic policy to be dictated by (or defaulted to) the narrow interests of financial capital.

  4. Megan
    July 4th, 2015 at 18:17 | #4

    The answer is not IMF incompetence, it is ideological.

    The IMF is neo-lib to the core and in the case of Greece the present aim is to destroy the elected government.

    While Greece was consistently maintaining that the debt was unsustainable and debt restructure must be part of the negotiations, the IMF led troika was flatly refusing to contemplate debt restructure.

    All the while the IMF’s own analysis confirmed that the debt was unsustainable. That isn’t accidental, it is deliberate ideologically driven policy.

    From the Guardian’s report (1/7/15):

    Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors.

    The documents, drawn up by the so-called troika of lenders, support Greece’s argument that it needs substantial debt relief for a lasting economic recovery. They show that, even after 15 years of sustained strong growth, the country would face a level of debt that the International Monetary Fund deems unsustainable.

    The documents show that the IMF’s baseline estimate – the most likely outcome – is that Greece’s debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded. That is well above the 110% the IMF regards as sustainable given Greece’s debt profile, a level set in 2012. The country’s debt level is currently 175% and likely to go higher because of its recent slide back into recession.

    The pro-austerity “yes” propaganda has gone into over-drive. Tomorrow’s referendum will be a test case of whether democracy can trump fascism.

  5. rog
    July 4th, 2015 at 18:37 | #5

    There seem to be plenty of articles and studies from the IMF saying that austerity is basically crap, so what are they?

  6. Peter
    July 4th, 2015 at 20:19 | #6

    I agree completely with this guys take:
    To Greeks: Don’t believe the BS

  7. July 4th, 2015 at 22:24 | #7

    So when does it become ok to repudiate your debts? And if you do, what are the consequences?

  8. Megan
    July 5th, 2015 at 00:13 | #8

    @John Brookes

    So when does it become ok to repudiate your debts?

    1. If you are unable to repay them;

    2. If they were unconscionably, fraudulently, odiously and/or imposed under duress.

    And if you do, what are the consequences?

    In the case of:

    1. You are bankrupted, your assets are liquidated to meet your creditors’ claims pro-rata, you are left with the essentials of life, you have a “clean slate” to start afresh and your creditors have no further claim on you;

    2. Your creditors lose anything up to 100% of their claims against you, you may have a claim against your creditors for damages suffered as a result of the unfair imposition of those debts, and you may start afresh.

    Roughly.

  9. Ernestine Gross
    July 5th, 2015 at 00:33 | #9

    “The corollary would appear to be financial repression of the type practised in the Bretton Woods era, ”

    This seems to me to be a pre-condition for Keynesian-type deficit financing as well as further fiscal transfers within a currency region.

    Radner’s mid-1970 paper on a sequence economy has convinced me that the ‘big bang’ and the associated belief that competition in financial markets works like competition in markets for simple physical goods (say shoes, hats, apple cakes) is fundamentally flawed because without further assumptions on the risk preferences of decision makers ‘the economy’ is unbounded. In particular, the assumption of each and every individual being strictly risk averse and, collectively, their price expectations are not ‘too divergent’ (O. Hart) makes no sense at all for corporations. In support of the latter, the change from privately held US investment banks (their own money was at stake) into public listed corporations has been noted as having changed the behaviour.

    UK (the city) and US banks have profited from the creation of the misery in Greece, to some extent more so than EURO member banks. When the ‘big bang’ house of cards came down, their governments looked after them and not their populations. Now Greece is seen as the problem of the EURO countries. Why?

    What actions could the EURO country governments take in the response to the GFC? Printing money, as the US has been doing, only converts privately generated bad debt (money) into official money (future tax liabilities). It saves the payment system, it saves the banking system but it does not reduce wealth and income inequality. It is no big deal to achieve a reduction in unemployment rate at close to subsistance level. It took the Obama administration the greater part of its second term to get health insurance which is still available to Greek people (ignoring the alledged corruption in the form of the demand for side-payments). And how is the housing market in London? Yet another real estate boom?

    Those EURO countries who were not overloaded with public debt did respond with debt-financed fiscal stimulus like in Australia. Without achieving domestic market stability the tourism industry in Greece and Italy and Portugal would have had reduced revenue (Spain, where some real estate investment was in holiday houses, missed out because the expected demand for the real estate from the North dried up. McKenzie Athens, 2012, advises Greece to build holiday houses on a large scale. Sure, lets repeat a proven failure.) The actual size of the financial problem of Greece may have been known to Goldman-Sachs but was not publicly known for several years. But then the US government is said to not have known about the imminent bankruptcy of Lehman Brothers until a few hours before the event. Why did they not act earlier? Why did ‘the City’ not act in 1988 by objecting to the ‘big bang? George Soros sent a fast signal to ‘the City’, his gain and the British tax payer’s loss.

    So it is much easier to talk about the wisdom of Euro skeptics and the foolishness of the troika then about the shock horror idea of re-introducing “financial repression”.

  10. July 5th, 2015 at 03:23 | #10

    Large rallies in Greece and Australia for ‘No’ vote against austerity and privatisation

    The 11:00PM ABC news last night reported large rallies for a ‘No’ vote at today’s referendum in Greece. Rallies in Greece in support of a ‘Yes’ vote were considerably smaller. Rallies by Greek Australians also featured in the report. In spite of the fact that further austerity and privatisation that could only be ended with a ‘No’ vote, would be disastrous for the Greek people, the organisers of the Australian rallies chose not to advocate ‘No’ vote. Instead, the rallies are taking a neutral stance ostensibly in solidarity with Greece.

    It seems that now, only the report of the Australian rallies can be found on the ABC News site. However, included below in this article is an embedded 10:30 minute video of a huge “No” vote rally on 3 July addressed by Greek Prime Minister Alexis Tsipras. The speech is dubbed over in English.

  11. J-D
    July 5th, 2015 at 08:23 | #11

    @James

    Rallies in Greece are reported in this story on the ABC website (URL munged to avoid auto-moderation):
    http colon double slash www dot abc dot net dot au slash news slash 2015-07-04 slash greeces-tsipras-demands-debt-write-off-grace-period-repayments slash 6594636

  12. Ikonoclast
    July 5th, 2015 at 08:46 | #12

    @Ernestine Gross

    Good points. I very much agree with your post. I wouldn’t entirely let the Euro technocrats (ECB and EC), the politicians like Merkel et. al. or the IMF off the hook but I agree that the full picture of economic incompetence and culpability is much wider as you have outlined.

    I think all the usual suspects (meaning me and the heterodox economists I am likely to invoke) would agree with Quiggin and Gross on the broad policy prescriptions needed to help in Greece’s case while still remaining in the current political economy paradigm (and without believing that such prescriptions will magically fix all of Greece’s problems).

    It isn’t too radical to say;

    1. Increase financial regulation.
    2. Cease austerity (contractionary fiscal policy) and implement some Keynesian stimulus in a time and place, now in Greece, of severe recession. Really, Greece has a depression.
    3. Give targeted fiscal aid (ensuring it gets to the poorest people not the bankers).
    4. Carefully craft part debt forgiveness and/or debt moratorium as required.

    If these moderate social democratic measures look radical now (to some) it’s only a sign of how far to the right the system has moved.

    I still hold that all these problems ultimately derive from and are expressions of the issue surrounding the concentrated ownership of the means of production. If we don’t go to the core of the problem we will always be dealing with the symptoms meaning these crises.

    You mention inequality. This system systemically and chronically generates inequality. Governments under this system must continually re-distribute if they wish to reduce inequality. The inescapable logical conclusion is that the institutions of ownership (ownership which confers command and control of resources, production and outputs) need to be re-designed. Re-designing ownership does not at all mean that regulated markets (“free within bounds”* as I say) should be abandoned. To put that positively, it is possible to institutionally redesign ownership while keeping markets and sensible regulation of said markets.

    * Note: Philosophically, I subscribe to that notion that human and social freedoms are essentially positive, good and useful but that all such freedoms can only be implemented in praxis as “freedoms within bounds”. We can see the truth of this everywhere about us.

  13. James Wimberley
    July 5th, 2015 at 09:06 | #13

    With the deliberately engineered exception of the EU Commission, international governmental organisations are not controlled by their permanent officials (I spent my working life as one) but by voting government representatives. The officials have a big say in agenda-setting, but the IMF’s core business is responding to exogenous crises. What makes the IMF and World Bank unusual is that the voting is weighted: they are clubs of rich countries. They are run by the same policymakers who brought us the GFC.

  14. paul walter
    July 5th, 2015 at 09:49 | #14

    Do people consider the “blame the victim” aspect of the austerity aspect? It is plain that it bears a resemblance to Abbott blaming the unemployed for their own plight when economic policy has engineered a rigged labour market.

    We have to have austerity as a fit punishment for profiligacy and backsliding, what’s more. If there wasn’t profligacy, we wouldn’t have austerity, stands to reason?

    It is an alibi to obscure the real criminality involving thuggery exploitation and a giant Ponzi scheme via yet another scapegoat.

    We blow the Middle East back to the stone age because of “terrorism”, but we never consider what created the instability that compells resistance, to cite another example.
    Far from finding out what the underlying problems are, they do what happened with Zaki Mallah and go all out to suppress anything that could remotely shed light on a perpetual, inordinately expensive problem developed to keep the populace scared , so they can get on with plunder elsewhere.

    Roland Barthes revealed how this all works sixty years ago in”Mythologies”and Baudrillard developed the idea with his “simulacra” ideas and TV wars.

    The article John Quiggin provided us with demonstrates that all we have with Europe and Mediterranean countries is Mid East warfare without the bombs (yet).

  15. BilB
    July 5th, 2015 at 12:39 | #15

    Before you go headlong into Austerity bashing, have a look at the underlying structure of the economy. This is an older article which explains a bit of the foundation of the problem. The fix for the Greek economy must be multi layered if the entire income structure is not based on value for performance, which this article suggests that it is not. Greece is a complex countrywith a multitude of micro economies spread around its many island communities. I suggest that the situation requires solid analysis to determine a path back to health.

    I suspect that apart from chronic taxation corruption Greece’s other problem is the number of people in island villages which are uneconomic drawing on unemployment benefits and pensions. The population performance ratio between Greece and other core EU states would tell the story, and point to some solutions.

  16. BilB
  17. paul walter
    July 5th, 2015 at 14:32 | #17

    The local Kelptocracy colludes with global banks to off load casino debt onto the people?

    How often have we seen that in the past?

    It is the reason why the nostrums mentioned are never applied- because the country is never alowed to get off its knees in the first place.

  18. July 5th, 2015 at 14:43 | #18

    J-D on July 5th, 2015 at 08:23

    Thank you for advising me of my mistake. I have corrected the article and have acknowledged your advice as a footnote to the article.

    The article now includes two embedded videos of a huge recent rally in Greece for a “No” vote. The first is only 3:49 minute in length. It has no English translation, but that scarcely detracts from its value for non-Greek-speaking audiences. The second video is 10:30 minutes in length and has been dubbed over by an English translator.

  19. Ikonoclast
    July 5th, 2015 at 14:45 | #19

    @BilB

    I won’t say too much but it reads very much like the standard neoliberal playbook.

    About 12% of Greece’s 10 million plus population is on the islands. That puts 88% on the mainland. It’s not the only nation in the world with archipelagos or “islanded” communities. The Greek islands are in at least one way a key asset (for tourism). I wouldn’t say that overall they are a liability. That seems a stretch. And nations with sea access always benefit from that with fishing and trading opportunities.

  20. Megan
    July 5th, 2015 at 14:58 | #20

    @Ikonoclast

    Yes, Elena Panaritis (the writer of that piece) was a PASOK member of the Greek parliament until 2012.

    By mid 2012 she had gone off “austerity” somewhat (but her fixation is ‘property rights’ and neo-liberalism more generally)[from her june 2012 article “Debt Forgiveness is Inevitable”]:

    Yes, Greece has to drastically cut its expenses, but more austerity and public sector spending cuts only serve to plunge the country deeper into recession. Austerity has made it difficult for Greece to meet its fiscal targets, as well as its structural reforms. This is why anything short of debt forgiveness — always conditional to structural reforms — and more bailout funds, is only a way for Europe to buy a little bit of time but at a huge price.

    She was a World Bank economist and played a large part in Peru’s experiment with neo-liberalism (from Wikipedia):

    Panaritis’ reform work in Peru was implemented by the Alberto Fujimori regime and earned the name “Fujishock”. While some macroeconomic figures improved on paper in the short-term before dropping off once again, and while the global financial community was satisfied with the reforms being undertaken by the Peruvian government, “Fujishock” led millions of people into poverty, as prices on everyday consumer goods rose radically. Panaritis specifically served as the World Bank’s country analyst for Peru between 1991 and 1993, during which 150,000 properties in Peru were privatized and numerous state enterprises were also privatized. In her position, Panaritis supervised the privatization and debt restructuring program of Peru and maintained the dialogue between the Peruvian government and its lenders, during which Peru repaid debts owed to international lenders.

    From 1994-1997, Panaritis served in the World Bank’s “Private Sector Development Division” and advised the Fujimori government on “reform programs for better service delivery” while managing ¥155.2 million in funding from Japan for the continued implementation of Peru’s privatization program.

    Fujimori’s government faced allegations of authoritarianism, corruption, human rights violations, and allegations of mass population sterilisations and mass executions. Fujimori is currently serving a jail sentence based on these charges, including use of death squads and other human rights violations. The implementation of “Fujishock” ended after the 2000 elections.

    So I wouldn’t be taking too much advice from her.

  21. Megan
    July 5th, 2015 at 15:29 | #21
  22. BilB
    July 5th, 2015 at 16:24 | #22

    Ikonoclast, I am not saying that island people are liabilty, I am saying that the structure of the country as a whole has special challenges. You have to understand the problem before you can profer solutions. Small villages that historically were essentially local self sufficient economies at a level independent from the country as a whole which were based on a resource that has become scarce (fish look at any study on the mediteranean fish stocks) that then became recipients of a nationalvwelfare system were certain to become fully dependent without a well thought through redeployment programme. I am only guessing based on fleeting impressions but the article suggests that this may be part of the cause. What other structural flaws does the Greek economy have for there to be a 28% unemployment level with over 60% of under 25 employment.

    That was a 2011 article. If the country had taken some of the advice then they may not have been shere they are now. Writing off the debt will not resolve the country’s problem, particularly if no one knows what it actually is, or if they do are determined to ignore it.

  23. Donald Oats
    July 5th, 2015 at 17:40 | #23

    @Megan
    Saw that. Also liked the article on carbon capture plants, and how it’s always just around the corner, always tomorrow, never today (to slightly paraphrase one Republican).

  24. Ikonoclast
    July 5th, 2015 at 20:25 | #24

    @BilB

    What country does not have “something about its structure as a whole” that offers special challenges? The proposition is too vague.

    Is Greece’s “islandy-ness” a unique problem?

    The following nations are significant (meaning significant in population or area) island or archipelago nations: UK, Japan, Indonesia, Philippines, New Zealand.

    Is their “village-ness” a unique problem?

    According to world bank data in 2102, 22% of Greece’s population was rural while 25% of Germany’s population was rural. Switzerland 26%, Italy 31%.

    Of course, broad figures hide a lot of fine detail but I personally don’t believe Greece’s problems lie in demographics or topography. I mean other than the demographic problem of its current brain drain of young people which followed austerity (and thus did not proceed it).

    Greece’s problems are largely caused by macroeconomic mismanagement originating in the EU (and also to some considerable extent in the UK and USA.) Secondary causes are institutional within Greece rather demographic or topographic, IMO.

  25. Ikonoclast
    July 5th, 2015 at 20:27 | #25

    Correction of last sentence above:

    Secondary causes are institutional within Greece rather than demographic or topographic, IMO.

  26. Luke Elford
    July 5th, 2015 at 21:06 | #26

    @BilB

    “What other structural flaws does the Greek economy have for there to be a 28% unemployment level with over 60% of under 25 employment.”

    Greece had an unemployment rate of eight per cent in 2008, the same as Germany. The idea that a threefold increase within five years is a result of structural failures peculiar to Greece’s economy—rather than the inability of any economy to adjust to the huge contraction in aggregate demand that Greece endured—is ridiculous.

    Greece’s poor governance may be a good explanation for its low GDP per capita relative to the countries of north-western Europe. It is not a good explanation of why its GDP has fallen 25% within five years. No country, Greece included, is going to have good economic governance when the public cannot understand the difference between long-run, supply-side and short-run, demand side economic issues and judge government policies accordingly.

    Via Simon Wren-Lewis’s Mainly Macro: http://www.boeckler.de/pdf/p_imk_pb_1_2015.pdf.

    “This policy brief reexamines the effects of the Greek austerity experiment on its economy via a counterfactual analysis. We combine the fiscal multipliers from the meta regression analysis in Gechert and Rannenberg (2014) to the fiscal consolidation measures that have been implemented in Greece between 2010 and 2014. We estimate that austerity explains almost the entire collapse of Greek GDP after 2009. This result suggests that – ceteris paribus – in the absence of austerity, the Greek economy would have entered a prolonged period of stagnation, rather than a depression. At the same time the path of the government debt-to-GDP ratio would have been only somewhat higher.

    “Furthermore, we estimate that if the consolidation would have been postponed until after the recovery of the Greek economy and implemented gradually, almost 80% of the cost in terms of lost output could have been avoided. Our results suggest that the period 2010-2014 was the wrong time to implement frontloaded spending cuts due to their strong multipliers in downturns.

    “Implementing only the revenue components of the Greek fiscal consolidation would have strongly reduced the output contraction as compared to the actual path of GDP, but would have been much more effective at lowering the debt-to-GDP ratio than the actual fiscal consolidation. A more cautious consolidation would thus have been in the interest of international creditors as well.”

  27. Ikonoclast
    July 5th, 2015 at 22:45 | #27

    @Luke Elford

    Thank you Luke for a voice of reason.

  28. BilB
    July 6th, 2015 at 01:53 | #28

    I don’t see that that study says anything that is not obvious. I says that without the Austerity ie cuts in public expenditure, that the Greek economy would have faired better. Well obviously, the government spends money in employing people and continues paying unemployment payments and maintains pensions. Obviously the economy is going to be more bouyant, but it was not in any position to mount a recovery as the report suggest earlier but then at the end admits that the economy would be way behind other European countries and its performance is uncertain.

    I put it to you that the fact that unemployment is at 28% this clearly shows how much the economy was being propped up by deficit spending. The fact that 60% of under 25’s are unemployed says that the economy had very little vibrance or agility. When I was in the Czech Republic walking around Prague, a city where many of the buildings are 900 years old, I began to wonder what the ownership structure was like, so spent some time talking to small business people I encountered how much it cost to have access to the space they were using. What came out mostly was everyone had a story about knowing someone who had an arrangement with someone else. Nothing was straight forward as it is here. And this is what I suspect the comment in the article about property rights alludes to (I am guessing here), in a city with a thousand years of history has complicated property ownership. Why is that important? It makes it very difficult for people to be entrepreneurial when there is no space to get a start.

    Greek labour should be very cheap at present so it should be encouraging local production of many goods against imported goods, but against that is that goods imported from Asia are so cheap for dealers to buy, they have considerable flexibility to adjust their profit margins without resorting to local supply of clothing, shoes, process food items, consumer goods and hardware. I believe that the Greek government should have applied across all imported goods and services a levy to tilt the competitive table further to stimulate local supply of many goods, with revenue from the levy being applied directly to promote local entrepreneurship. It does not take a lot of equipment to kick off a business. A sewing machine, a small lathe and drill, a mixer and a baking oven, a computer with some specific software of a variety of kinds, a small truck, a small wood working compound saw bench and some hand tools, hairdressing scissors combs and a chair, a sketchpad and pencils or paint, a set of socket and ring wrenches, a metal polishing wheel, leather working tools, I’ve seen a grinding wheel mounted on the back of a motor bike for sharpening knives for restaurants, and a myriad more microbusiness implements. All it takes is knowledge, some tools and some space. a government levy funded micro loan scheme is very powerful. Way cheaper, more immediate and effective than say a hex scheme.

    Greece needs to get 2 million people productive in a short time span. How would you go about doing that.

    Anyway I am not arguing for austerity, I am saying that Greece needs ground level solutions to reinvigorate their population into a productive frame of mind rather than holding out for more money from the IMF. After all even our brain dead government is telling us that we should work to age ninety five before we ask for a pension, and we must do this because some people might in the future live to 150 years.

  29. Fran Barlow
    July 6th, 2015 at 07:04 | #29

    I awoke to the news this morning that EVERY Greek voting district has voted no to the EU invitation to commit the Greek equivalent of suppuku. By a margin of 61-39 they rejected the attempts of the ECB to punish them for the sins of the elite.

    I don’t know what will happen to the working people of Greece but with this vote today they have kept open the door to sovereignty and a viable medium term future. One has to admire Tsipras and Syriza for not wilting in their determination to stand with their people. For possibly the first time ever, a government of a first world country has chosen its working people over the rule of big business.

    Today, all of us for whom ‘the crimson thread of kinship’ describes our bond with working humanity are celebrating. In the country seen so widely as the origin of the concept democracy, the working populace reasserted it unambiguously.

    Today is a great day. This was a victory for us all.

  30. July 6th, 2015 at 08:01 | #30

    Yes Fran! I slept in a bit this morning and just woke to this news. I have been waiting for this. There is a hard road ahead for Greece anyway, but let us hope their courage is rewarded and that this spells the end for the cruel doctrine of Austerity, in Greece and elsewhere.

    Here is one of Tsipras’ Twitter posts:
    @tsipras_eu: The Greek ppl responded to real question at hand: What kind of Europe do we want?
    The answer: A Europe of solidarity & #democracy. #Greece

    A message for Europe and the world. Solidarity!

  31. Megan
    July 6th, 2015 at 09:04 | #31

    The Greek people voted resoundingly NO to bullying, lies, establishment media propaganda, fearmongering, threats and neo-liberalism.

    Samaras has resigned as leader of opposition ND party.

    Shultz, Juncker, Shauble, Merkel, Hollande and all the others should take a look at themselves and consider their positions.

    Greece has called the bluff of the fascists and they would do well to heed the result. I imagine that secretly a lot of them are terrified that this defiance of the man behind the curtain might catch on.

    However, I expect the reaction will be cruel, petulant, unreasonable and harsh. If so, they will get an even ruder shock when people from the rest of Europe and the world start making themselves heard.

    Round 1 to the Greek people.

  32. J-D
    July 6th, 2015 at 09:06 | #32

    Antonis Samaras, leader of the New Democracy party since 2009 and Prime Minister from 2012 to January of this year, has resigned from the leadership.

  33. Crispin Bennett
    July 6th, 2015 at 10:46 | #33

    Fran, Val, Megan: I’m also heartened by events this morning (an uncommon occurrence). Good on the Greek citizenry for an inspiring moment of solidarity and courage. Defying the corporatocracy is inevitably a gamble. I hope it pays off (the best payoff, of course, would be for the defiance to spread).

  34. Ivor
    July 6th, 2015 at 10:50 | #34

    Message from the people of the Hellenic Republic….

    IMF – Piss Orff!

  35. paul walter
    July 6th, 2015 at 11:05 | #35

    So.

    Everyone sees through the Troika.

    This is a good morning for me also, but I fear for yet more misery not only for the Greek People, but people dozens of other countries, including many even worse off through globalisation, across our globe.

    It is true, the old claim that capitalism doesn’t give a stuff about what and who it wrecks, bad or good, with its craving for lucre and control.

  36. Megan
    July 6th, 2015 at 11:48 | #36

    Can’t vouch for this, but apparently the “Yes” propaganda strategic document of the ND party was leaked on Saturday.

    Sounds familiar (translated from German, and presumably from Greek before that):

    Indicatively, we report that whilst the images that prevail are the queues outside banks and the supermarkets, the exit polls difference in favor of YES are double in percentage. This morning, in one of the polls’ companies, the difference arrived at 10%!

    We consider that the perspectives of YES are positive, yet realizing the change in the public opinion stance (swing), as it happens with tremendously rapid rhythms, cannot be believed neither by those who are swinging towards YES.

    That is why, to the extent that it is possible, the poll/social dynamic in favor of YES should be represented scaling by the poll companies, that is to show that there is a dynamic – current in favor of YES, which is stable. But not with similar percentages, as the people are still suspicious towards poll companies. They are considered part of the system.

    On the other hand, on Friday July 3rd, that is the last day allowed by law to publish polls, a clear and holistic prevailance of YES should be highlighted, one that does not allow any doubts to be raised, neither allows though (our voters) to become complacent.

    A difference that ranges from 5 to 10 per cent, depending on the company. It is important to note that in similar referendums abroad, YES is usually underrepresented.

    So in brief:
    “Scary images of bank queues and empty supermarkets should be pushed by the media” – check!;
    “Get the polling companies to fabricate the polling toward a ‘Yes’ result” – check!;
    “But make sure there is enough of a difference between polls to avoid suspicion” – check!;

    So there really isn’t any “surprise” that the polling companies “got it wrong” (they were all reporting 50/50, knife edge, too close to call etc…. No, they were deliberately fabricated.

  37. J-D
    July 6th, 2015 at 15:11 | #37

    @Megan

    What’s your source?

  38. J-D
    July 6th, 2015 at 15:38 | #38

    @BilB

    I believe that the Greek government should have applied across all imported goods and services a levy to tilt the competitive table further to stimulate local supply of many goods, with revenue from the levy being applied directly to promote local entrepreneurship.

    On the face of it that is incompatible with the common external tariff and internal free trade of the EU Customs Union.

  39. Megan
  40. J-D
    July 6th, 2015 at 16:45 | #40

    @Megan

    I can’t see anything that says who those people are or what their source is.

  41. Luke Elford
    July 6th, 2015 at 17:30 | #41

    @BilB

    “I put it to you that the fact that unemployment is at 28% this clearly shows how much the economy was being propped up by deficit spending. The fact that 60% of under 25?s are unemployed says that the economy had very little vibrance or agility.”

    I put it to you that 28% unemployment is what happens when a country experiences of large fiscal contraction, and cannot replace the contribution to aggregate demand made by government spending because it does not control its own currency and cannot lower interest rates to boost investment and exports. No economy has the necessary ‘agility’ to achieve a successful adjustment in these circumstances. The necessary price and wage flexibility do not exist. And it tells you nothing about the potential vibrancy of alternative economic sectors.

    “Obviously the economy is going to be more bouyant, but it was not in any position to mount a recovery as the report suggest earlier but then at the end admits that the economy would be way behind other European countries and its performance is uncertain.”

    “[M]ore buoyant” is hardly an adequate description of achieving a five per cent rather than 25 per cent fall in GDP. It is the difference between recession and depression. The fact that Greece’s economy would have stagnated even in the absence of austerity is hardly surprising, given the scale of the balance of payments adjustment it faced (made all the more difficult by policies in the rest of Europe), but it does nothing to strengthen your argument about property rights and other structural issues. As the paper also notes, stagnation would be a poor outcome compared with Greece’s previous performance, which would have been just as hindered by any such structural issues.

    “Anyway I am not arguing for austerity, I am saying that Greece needs ground level solutions to reinvigorate their population into a productive frame of mind rather than holding out for more money from the IMF.”

    But this is exactly what the austerity approach is. Instead of loans to allow a gradual reduction in deficits, the focus has been on massive upfront cuts, with wage cuts and reforms to boost competitiveness and productivity. And it’s been a disaster.

  42. Robert
    July 6th, 2015 at 17:31 | #42

    Could someone please explain why so much focus is on Greek debt instead of unemployment, which I believe is over 20%. I fail to see how a country can repay debt with that level of unused productive capacity and locked into economic stagnation.

    If Greece remains in the Euro, it’s chances of getting unemployment down seem to me to be zero! It can’t use monetary policy or exchange rate policy. It can’t engage in fiscal expansion because of it’s huge debts. Wage policy is probably too difficult politically. So what other options are there to revive it’s flagging economy?

    If it exits the Euro with a substantial currency devaluation, that itself will provide a much needed economic stimulus. It will also worsen the terms of trade and provide austerity by stealth, which I presume is needed to make up for the extravagances of the past. And if there is scope for monetary expansion that could provide additional stimulus.

    The whole thing seems like a complete cock-up. Am I being over-simplistic?

  43. BilB
    July 6th, 2015 at 18:56 | #43

    JD

    “On the face of it that is incompatible with the common external tariff and internal free trade of the EU Customs Union.”

    ,…granted, but so also is not paying ones debts. The aim here is to find a way for a country that is way behind in performance in an aggregated economic pool to find a way to catch up, and not drop out. Rules can be changed.

  44. J-D
    July 6th, 2015 at 21:49 | #44

    @BilB

    Obviously it’s possible for rules to be changed; also, obviously it’s possible for people (groups, organisations, whatever) to break rules. Both of these things actually happen, so it’s indisputable that they’re possible.

    It’s also the case that there are often penalties for breaking rules, even though in some instances they may not be enforced and in some instances it may not be possible to enforce them. Not paying your debts is (generally) against the rules (although if you’re suggesting specifically that they’re against the rules specifically of the EU Customs Union that prescribe a common external tariff and internal free trade I think you’re mistaken), and as a breach of the rules it can be penalised. Similarly breaking the rules of the EU Customs Union about a common external tariff and internal free trade can be penalised. In both cases it’s reasonable to ask what the theoretical penalties are and what enforcement action is likely; if you try to discuss either while excluding any discussion of the rules and the penalties I think you’re making a mistake.

  45. Ernestine Gross
    July 6th, 2015 at 22:40 | #45

    It seems to me BilB is saying that macro-economic projections and discussions of solutions to the debt issue in Greece are helpful if and only if it there is a corresponding set of micro-economic policies, including a suitable institutional environment.

  46. Troy Prideaux
    July 6th, 2015 at 23:11 | #46

    @Robert
    That’s pretty much my interpretation also.

  47. J-D
    July 7th, 2015 at 07:46 | #47

    @Ernestine Gross

    If that’s what was meant, then it’s highly relevant to point out that a suitable institutional environment for the specific suggestion under discussion would have to include major change to the rules of the EU Customs Union, and that such change is highly unlikely.

  48. Ernestine Gross
    July 7th, 2015 at 11:02 | #48

    @J-D

    The point about external tariffs had already been acknowledged by BilB. Since taxation is left to national governments, it is possible to have different VAT rates (GST rates) structures.

    My point was intended to be more general. For example. you may agree the topic ‘property rights’ can be discussed on many levels, from the philosophical to the here and now practical. It seemed to me, BilB was talking about the here and now level. In this regard, in contrast to other EURO-zone countries and certainly the UK, Greece did not have a comprehensive land title registry until very recently. This matters for both, business and potential taxation revenue. This is only one example.

  49. BilB
    July 7th, 2015 at 13:40 | #49

    Thanks for your considered thoughts, Ernestine. I am indeed talking about the here and now. Rising out of an emergncy situation quickly to relive sufferring requires a different set of rules, for the period of recovery. In our experience we had the Ansett levy, and the Queensland flood levy. It is no big deal to create new temporary rules to stabalise a bad situation, and it is in the entire communities interests. In the case of Greece it is in the entire European Communities interests to make special arrangements for the time it takes for a member state to recover and catch up.

    Another method would be to have a Europe wide debt stabalisation levy, a kind of emergency sink fun, to resolve such problems when they arise. They may well have such a mechanism but if they do it does not seem to be working. I prefer a mechanism that is linked to an indicator. For instance a border levy that is linked to the level of unemployment. If unemployment rises out of range then the border levy notches up. Imports cost more making local product more competitive. It should have the same effect as a change in currency value, which for Greece is lost to them in the common currency.

  50. BilB
    July 7th, 2015 at 13:41 | #50

    ….relieve….

  51. J-D
    July 7th, 2015 at 16:03 | #51

    @Ernestine Gross

    The fact that something is against the rules here and now is less relevant in a high-level abstract philosophical discussion and more relevant in a here-and-now practical discussion.

  52. J-D
    July 7th, 2015 at 16:05 | #52

    @BilB

    The Australian Parliament has the legal power to change Australian laws. Greece (acting alone) does not have the legal power to make changes to the terms of EU treaties.

  53. BilB
    July 7th, 2015 at 17:18 | #53

    …but Europe does, JD, and this is in their interests too.

    That is my inexpert take on the situation, do you have a solution path to recovery for Greece that is proportional to the scale of the problem?

    If we were thinking of the economy as a car moving down the road with the government as the driver, the way I see Greece’s car is that its fuel tank is dry and one wheel has come off, and the driver is sitting there turning the steering wheel and pushing the peddles but the car is not moving. The driver has got to get out of the seat and fix the car before it can proceed further. The government has got to put the wheel back on (get people back to work), and put fuel in the tank (taxation) to get the engine running (economy) properly again. Or something like that.

  54. J-D
    July 7th, 2015 at 18:23 | #54

    @BilB

    You made a specific suggestion of a course of action. I didn’t write that your suggestion was a bad idea, or that it wouldn’t work, or that it shouldn’t be tried. I don’t know whether it’s a good idea. What I do know is that it’s against the rules of the EU customs union. Maybe the EU customs union isn’t a good idea either; I don’t know. But given the history of the EU, giving up on the idea of a customs union is one of the things (rightly or wrongly) it is least likely to do. A uniform system of customs duties was one of the main purposes of the original entities from which the EU grew.

    You want to know whether I have a plan for what Greece should do to solve its economic problems? No, I don’t. But that doesn’t affect the accuracy of my previous comments.

  55. BilB
    July 7th, 2015 at 20:36 | #55

    OK.

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