Greece and the Fatal Diet – Bgonair

We cannot make good news out of bad practices, Edward Murrow – one of history’s most remarkable journalists and the man who exposed McCarthyism – once said. But in August, the European Commission tried to do just that. At the beginning of the month, European Commissioners Paolo Gentiloni and Valdis Dombrovskis sent a letter to Greek Finance Minister Christos Staikouras confirming that the commission will not extend the special monitoring on Greece after its expiration on August 20*. “Greece is returning to European normality and is no longer the exception in the eurozone,” Staikouras commented in response, and some observers close to the commission described the move as “the end of the Greek crisis” after 12 years. Greece “fulfilled most of its commitments,” Gentiloni said, and “achieved effective implementation of reforms” despite the complications of Covid-19 and the war in Ukraine.

THE EUROPEAN COMMISSION AND THE ECB HAVE a dire need to produce good news amid the total failure of the former to secure a single European energy policy in response to the Ukraine crisis, and the latter’s belated and half-hearted measures to counter inflation. But is the end of monitoring on Greece really good news? And is this really “the end of the Greek crisis”?
There is no denying the sacrifices ordinary Greeks have made in the name of “belt-tightening” and reforming the economy. The early repayment of IMF loans by the Greek government, as well as the abolition of capital controls, cannot be denied. Now, Gentiloni notes as successes the growth of the economy, which is expected to reach 3.5% in 2022 and 3.1% in 2023, and the “pleasant surprise” with the budget deficit for 2021, which was only 5.5% against expectations of more than 7%. But the important question is elsewhere: whether after the 12 years of ruthless measures imposed by the “Troika” Greece is better offthan it was at the beginning of the crisis?

WHAT DO THE NUMBERS SAY? In the first quarter of 2010, when Greece’s public debt was described by its European partners as catastrophically high, it was equal to 147.5% of the national Gross Domestic Product (Eurostat data). Twelve years later, after “successfully carried out reforms”, it is… 189.3% of GDP. Despite the fact that in the meantime the methodology for measuring the gross product was changed and it is now significantly higher. It turns out that the harsh measures imposed by the European partners have practically increased the “catastrophically high” Greek debt by more than 50% of GDP (just for comparison, Bulgaria’s entire public debt as of April 2022 is only 22.9% of GDP).
In absolute value, the Greek debt at the beginning of 2010 was 311 billion euros, and at the beginning of 2022 it is already almost 358 billion euros. Again for comparison, Bulgaria’s debt is 16.2 billion euros. Here are two more curious numbers: in 2000, just before Greece entered the Eurozone, its debt was 139.5 billion euros (105% of GDP). Five years after joining the Eurozone, it is already 214 billion.

IF WE DIVIDE TODAY’S PUBLIC DEBT of Bulgaria to its population – economists do not like such a presentation, but in fact it gives a much clearer picture than most others – then every Bulgarian today has a debt of 2,485 euros. If we divide Greek debt by the Greek population according to the 2021 census, every man, woman and child in the country owes 34,283 euros and 70 cents. And Greece’s demographic outlook is not good, to put it mildly. Until recently, the country’s population grew at a steady pace. But the relative affluence of the 1990s reduced the birth rate, and the crisis and measures imposed by the Troika drove hundreds of thousands of Greeks abroad after 2010. The 2021 census is the first in the country’s recent history to report a drop in population of almost 400,000 people compared to 2011. In 1980, the average age of Greeks was 33 years. In 2020 according to UN data the average age is now 45.6 years – the fifth highest in the world after Japan, Italy, Portugal and Germany. Even in Bulgaria, a victim of unusually powerful emigration in the last three decades, the average age is still slightly lower – 44.6 years.

THINGS LOOK EVEN CLEARER, if we calculate the debt only in relation to the number of workers. For the last decade in Greece they have also decreased by nearly 400,000 people and are now 4.66 million. Each of them has a debt of 76,689 euros. And the forecasts indicate that in 2030 the labor force of Greece will be no more than 4.53 million people. The number of working people is decreasing, the number of pensioners will increase dramatically as the generations of the 1960s retire. And the Greek pension system, despite the recent relentless tightening, remains quite generous compared to neighboring countries. It is obvious that the prospects for debt repayment by the Greeks themselves are not particularly good. It is true that in the first quarter of 2022 Greece is the country in the EU with the largest decrease in its public debt – by as much as 4% of GDP compared to the first quarter of 2021. But Greece was also the country that increased its debt the most during the Covid-crisis: at the end of 2020 it was as much as 25 points higher than at the end of 2019, so the current decline is not much consolation.

IT’S NOT COMPLETELY FAIR, HOWEVER to distribute Greek debt to Greek citizens. They have a very small contribution to its accumulation. Even after 2010, some Greek economists and journalists tried to highlight this. Quite a few of them even called for the debt to be declared uncollectible, since it was not actually absorbed by the Greek population – as Ecuador had done a few years earlier. At the time, this opinion did not gain much sympathy – firstly, because the world media helpfully painted the picture of carefree Greeks living lavishly on borrowed money and then refusing to pay it back; and second, because the Greek debts were incurred not by dictators and tyrants after all, but by the democratically elected – and re-elected – governments of the Papandreou, Karamanlis and Mitsotakis dynasties. The latter is even now in power through Kyriakos Mitsotakis. Today’s Greek Prime Minister is the son of Konstantinos Mitsotakis, who was Prime Minister in the early 1990s, great-nephew of Eleftherios Venizelos, the most influential Greek politician of the first half of the 20th century, and brother of Dora Bakoyani, former Minister of Culture and Foreign Affairs and Mayor of Athens (currently the mayor of the Greek capital is Dora’s son, Kostas Bakoyannis).

TODAY, HOWEVER, WE HAVE PRETTY CONVINCING evidence that ordinary Greeks did not contribute much to the accumulation of debt. Nor have they seen anything of the hundreds of billions they were forced to borrow afterwards as “bailout tranches”.
A study by the European School of Management and Technology in Berlin showed that of the first two rescue programs, with a net value of 216 billion euros, only 9.7 billion reached the Greek treasury or directly to the Greek economy. The balance was used for payments with the IMF, repayment of interest, recapitalization of banks and various incentives for investors. “Let’s be clear: almost nothing of the huge piles of money lent to Greece has actually reached the country,” Nobel laureate Joseph Stiglitz wrote in an op-ed for the Guardian. The bulk of the money went as payments to private sector creditors – “including German and French banks,” Stiglitz stressed.

HERE’S THE STORYTELLER to the suddenly increased debt. Before joining the Eurozone, Greece, like other southern European countries such as Spain, lived with interest rates of around 14%. This kept lending within reasonable limits, and the Greek central bank could control the banking sector and ensure that the profits of the local banking system did not flow abroad. This is more or less the situation in Bulgaria in recent years (except that the interest rates on a global scale were much lower).
But then Greece entered the monetary union, interest rates fell four to six times, and bank capital controls went to Frankfurt. Commercial banks from Germany, France and other northern European countries literally rushed to southern Europe and began to give out loans almost by force. “The introduction of the euro opened wide the floodgates for the inflow of German capital and goods to the periphery of Europe,” emphasizes Yannis Varoufakis, the former Greek finance minister who alone tried to fight against the Troika.
In a matter of years, the Greek debt tripled. Spain’s public debt, which in 1999 was about 350 billion euros, already exceeded a trillion in 2013, and today it is 1.45 trillion euros – a jump of 315% compared to the pre-Eurozone era (it is curious that the debt of Sweden and Denmark, which did not are in the Eurozone, for the same period it rose by 41% and 18% respectively – in both cases less than inflation).

ACCORDING TO BLOOMBERG German banks granted more than 704 billion euros in loans to Greece and other southern European countries by 2009. Only the two largest French banks have lent 477 billion euros in the same direction. In every other sector of the economy, greedy and risk-blind behavior is at the expense of private investors. But not here: German and French banks were saved from their own mistakes at the cost of new public debt. Today, however, the burden of this short-sighted policy falls not only on Greek citizens, but also on the entire Eurozone. And on the central banks, which, as noted recently by the famous economist Nouriel Roubini, are now in the “debt trap”. “Any attempt to normalize monetary policy will cause a jump in the cost of servicing the debt, which will lead to mass bankruptcies, a cascading financial crisis and a collapse of the real economy“, Roubini emphasized. According to him, the era of the Great Containment, characterized by low inflation, high growth and mild recessions, is already over. Now comes the era of the Great Stagflation – with high inflation, low growth, high debt and the potential for severe recessions. And The ECB is in a no-win situation: As Varoufakis said in a commentary on Project Syndicate, the central bank will be “damned if it raises rates significantly (because that will send Italy and others into a tailspin) and damned if it doesn’t (because thus unleashing unstoppable inflation)”. It seems clear that the accumulation of bad practices has reached its limit and cannot continue. Nor can good news be produced from it – either for Greece or for Europe as a whole.

* The article was published in Bulgaria ON AIR THE INFLIGHT MAGAZINE, issue 144 (08) / 2022

The article is in bulgaria

Tags: Greece Fatal Diet Bgonair

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