GREEK DRAMA LACKS A HAPPY ENDING. ONLY POLITICAL TRANSFORMATION CAN UNLOCK RECOVERY ...
Five years and five rescue packages into Europe’s sovereign debt crisis, the eurozone – and the world – pays scant attention to the country where the financial panic first began.
After being lent hundreds of billions of euros by its neighbours, Greece, no longer perceived as a threat to the eurozone’s integrity, struggles in its misery out of the public limelight.
This should not be so, if only because Greece’s experience teaches valuable lessons despite its differences from other troubled countries. The International Monetary Fund’s latest scorecard on the adjustment programme, published on Monday, suggests glimmers of good news amid the suffering and continuing false starts.
The programme is achieving some of its economic objectives: the primary fiscal balance has improved by 10 per cent of national output, which must count among the biggest peacetime adjustments in history. The current account has improved by as much. The IMF thinks Greece has closed two-thirds of the competitiveness gap that opened after it joined the euro. Banks are finally being recapitalised, which may end the credit crunch.
However, the cost has been devastating. Output has fallen by more than 20 per cent. Unit labour costs have improved through cuts in wages – and thus standards of living – rather than increased productivity. The social costs are immeasurable and their effects will unfold for years to come.
There was no way for Greece to continue to consume beyond its means. As the IMF points out, without the much-resented rescue loans, the adjustment would have had to be even more radical – more abrupt cuts or the chaos of an uncontrolled euro exit. But the awful starting point did not preclude a better outcome. The eurozone could have accepted greater and earlier private sector haircuts. And Athens’ choices created more pain than was necessary.
So the suffering of innocent Greeks must be blamed not only on the excessively fast fiscal cuts, but on the choice to keep protecting the already privileged while shifting the brunt of the burden on to the slenderest shoulders.