European institutions are fully aware that Greece cannot pay these debts.
The deal between Greece and its creditors as it’s currently written, struck supposedly on equal terms, is indefensible and destined to fail.
Not only will it make life harder for Greeks, it exposes European leaders’ contempt for democracy.
First, for pensioners: if this is what a compromise looks like then I need to remind myself of its dictionary definition. Athens will have to raise €8bn through tax hikes, and part of the plan is to increase pensions contributions and phase out early retirement.
But look at it this way: forced austerity shrank the Greek economy by 25 per cent, meaning it was impossible for it to grow its way out of debt.
Who now pays? Older workers, who are already struggling and are now being told they’ll struggle until the end of their lives.
The second way of raising the €8bn is through a VAT rise. As the protests in Athens suggest, many people are unhappy that costs to goods will make up a large part of the country’s financial shortfall: to the extent that higher VAT rates will provide the equivalent 0.74 per cent of GDP.
Concessions with Syriza fingerprints on them include: a reduced rate of 13 per cent on energy, basic foods, catering and hotels; a reduced rate for medical supplies and books; and the tax increase on luxury yachts over 10 metres from 10 per cent to 13 per cent.
For anyone following the news it comes as no surprise that the International Monetary Fund (IMF) is pushing hardest. During talks it has been by far the most hardline, not bending at the prospect of a debt write-down.
The Enikos newspaper in Greece has recently confirmed that the IMF has suggested counter-proposals to the Greek government that focus heavily on pension reform, VAT changes, and a small increase to corporation tax.
The heavy-handedness of the IMF in particular, but the troika more broadly (composed of the IMF, the European Central Bank, and the European Commission), is the reason why there are a number of protests being held outside the Greek government’s offices.
While the majority of Greek people want to stay within the Eurozone and work out a deal that suits them as members, there is a gradual alignment of what the wider public want and what the left flank of Syriza (who support a Grexit) are fighting for.
Syriza achieved a very convincing victory in the last election. On their platform they reminded voters that the last government and the European leaders made a financial pact that has ultimately been the ruin of the nation’s economy.
The debts that have resulted, Syriza will argue, are illegitimate.
Indeed as my colleague Fanny Malinen has said in another article:
“The European Central Bank over-stepped its mandate by imposing political conditions on its loans. Other EU countries’ bilateral loans did not benefit the Greek people but instead European financial institutions.”
I couldn’t have put this better myself, though my only additional comment would be to say that ‘overstepping its mandate’ has become the troika’s weapon of choice.
European institutions are fully aware that Greece cannot pay these debts. They are fully aware that the deals made with the last government were done contrary to the good of the Greek people, who are now overburdened by them – the dictionary definition of odious debt.
The European institutions also know the will of the Greek people in the last election, but are choosing to ignore it. In doing so it is proving that the word ‘union’ in European Union is a lie; and that whatever the EU is, it’s not democratic.
As Malinen also puts in her article:
“The Debt Truth Committee published its first findings this week: ‘Greece not only does not have the ability to pay this debt, but also should not pay this debt, first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece.'”
Leaving aside these principles for a moment, economists should see that when Greece is not working because investment is slow, or Greeks are not spending because prices are too high, the country cannot grow.
Yet these are the demands of the country’s creditors.
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