About ten years ago 4 member-states of the European Union (Greece, Portugal, Ireland and Cyprus) fell prey to their imprudent fiscal and banking policies, their flaws exaggerated by the international crisis and had to be “salvaged” by joint EU-ECB-IMF “Programmes” of “soft loans” and structural reforms. The last Country to come out of such a Programme is Greece, where political and popular resistance to the Programme was at its highest. The “salvage operation” became straightaway the object of fierce domestic political in-fighting, denounced as European “punishment” of the “poor” Greeks for their fight for national sovereignty and self-respect. Ownership of the programmes was denounced by all political parties, despite the fact, that they were all involved in signing or implementing them, at some stage.

Most interesting of all (“hilarious” would be the right word, if one could abstract from the tragic suffering of the Greek people) is the confession of the present Left-Right coalition Government that they voted the enabling legislation in tears, because of their violated consciences. One could almost hear these professed atheists chanting the verses of the Orthodox funeral service: “Repose the soul of your sleeping servant in the land of light, luscious green, refreshment, from which every pain, sorrow and lament has vanished”.

The key question, of course, which this week was on the e-lips of Wall Street Journal, Reuters and many other authoritative communication journals is whether we have seen the backside of the Greek crisis. Can Greece go back to the markets, should the need arise? Is the Greek debt sustainable? Creditors experts, including the Eurogroup, ECB, the IMF and rating agencies raise various questions, ending in the universal chorus: “Carry on with Reforms and Privatizations”. They know well, and they mean well. Because they have learned the bitter way that the Greek cardinal sin is the triad: Statism, Populism, Clientelism.

What I miss in the current debate is a simple mathematical fact. The sustainability of the Greek or indeed any other debt is measured by a fraction: the size of the debt, over gross domestic product (gdp). The value of the fraction grows smaller in two cases: first, if the debt (enumerator) diminishes, second, if gdp (the denominator) grows. In the Greek case, the second option is not considered, even though in all the other three member-states, this was the key to the solution.

Ever since the Left-Right Government took over in January 2015, it stubbornly resists any effort to limit the unproductive State sector, dragging its feet over privatisations. Instead, it stopped housing investment (the locomotive of the Greek economy), by crippling taxation. There is hard evidence that this was government-planned to eliminate middle class professionals and small business, on political grounds, as their political clientele is massed in the Civil Service and its strong trade unions.

Creditors, on the other hand, for some inexplicable reason acquiesced in this crazy policy and aggravated it by insisting that Greece runs fiscal surpluses of the order of 3,5% of gdp for over a decade. The IMF was the only one to protest this folly, but to no avail.

The first sign of a political turmoil and the downfall of the Turkish lira were enough to project the extremely weak prospect of a Greek return to normality. Spreads of Greek bonds jumped back to crisis levels, prohibitive of any Greek borrowing. Under such conditions it would be morose to speak of an even “dirty” – let alone a “clean” exit from the third Programme. With the present policy mix a Greek recovery is an exercise of mythical tourism in the Land of Utopia.

By Maximos                                             22 August 2018


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