Greece And The Historical Record

The umpteenth European meeting to discuss Greece and the umpteenth time European finance ministers say no. No, they will not provide Greece with the funds to service its debt that they hold of (the remainder is largely in the IMF and ECB’s hands).  

While there is clearly a greater antagonism between this government and its predecessor, it did not begin with its election. The official creditors have cut Greece off since the middle of 2014. Indeed, that act may have led to Syriza’s election in the first place six months later.  

When the history of this confrontation is written, it will recognize that Greece has made a huge adjustment in recent years. Indeed, it will among the largest economic adjustments of a developed country in modern times.  

As Martin Wolf of the Financial Times noted, between 2009 and 2014, Greece’s primary budget has tightened by 12% of GDP, the structural deficit has been cut by 20% of GDP, and the current account deficit has been reduced by 12% of GDP.  

According to the OECD, unit labor costs in Greece have fallen by 15% since 2011. On the OECD’s Competitiveness Indicator of Unit Labor Costs has improved from 108 in 2011 to 74 at the end of last year.  

When the history of this confrontation is written it will recognize that the blunders of the creditor aggravated the situation. The creditors themselves have acknowledged this, and yet refuse to change course. There was a joint assessment by the Troika of the Greek-rescue. It admitted that it failed to recognize and appreciate the extent to which the austerity it insisted upon would weaken the Greek economy.  

As we have noted the IMF overrode its own rules (and staff objections) in the amount it loaned to Greece. It is not the first financial institution to over-lend to a particular counter-party. However, those institutions try to work out of the situation, as opposed to what the IMF has done, which is simply to reject any softer terms. Developed countries do not ask for such relief from the IMF, was the official response to the unofficial request.