Greece is being blown away by the Brussels and Berlin blunderbuss

Costas Lapavitsas writes: Last week I was in Athens and took the metro to Syntagma Square. Like many northern Greeks, I have mixed feelings towards the capital. Northerners do not like to admit it, but we secretly enjoy the smell of jasmine – the true scent of Athens. But this time the air smelt of cordite.

Syntagma was abnormally quiet: shops shut, people halfheartedly shopping, riot police everywhere. The atmosphere crackled with the expectation of something sinister about to happen. And lo, in Monastiraki Square, afew hundred yards away, agroup of young men attacked a shop owner; just another violent episode in a city resembling a tinderbox.

The prime culprit for the disintegrating social order is the economic policy emanating from Brussels and Berlin. In 2009-10 the troika – the European Union, International Monetary Fund and European Central Bank – judged that Greece had a problem of public deficits and debts due to profligacy, corruption and tax avoidance. They offered bailout loans in exchange for cuts to public spending, higher taxes, and reduced wages. Successive Greek governments have imposed austerity with alacrity, delivering a vast contraction of the deficit – perhaps even 8% of GDP by the end of 2012.

The trouble was that austerity could not have its usual accompaniment of currency devaluation, since the country remained a member of the European monetary union. The pressure of adjustment thus turned inward, causing an unprecedented depression – GDP has contracted by 4.5% in 2010, 7% in 2011 and probably 7% in 2012. Unemployment has rocketed, and a humanitarian crisis has emerged in urban centres. The NGO Médecins du Monde estimates that for the past several months the majority of its clients have been destitute Greeks rather than immigrants. Its medicine stockpile is currently running very low, and its managers have no idea how they will cope this winter.

But cope they must, because the troika is now demanding a further bout of austerity – cuts of nearly €12bn to create a large primary budget surplus and to start reducing Greek public debt by 2014. Desperate to remain in the EMU, the Greek government has agreed to slash pensions, retirement lump sums, public sector wages, social expenditure and military spending. The ensuing reduction in aggregate demand means recession will continue next year, with official unemployment perhaps even reaching 30%. In 2013 there will be people in Athens who will not have enough to eat. The tragedy is that the pain will be for nothing as the fresh austerity will probably fail. The troika is yet again underestimating the depth of the oncoming recession, and thus the loss of revenue and the higher unemployment expenditure. Greek public debt, meanwhile, remains completely unsustainable. It is very likely that further austerity measures will be demanded in 2013 and beyond. [Continue reading…]

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