The terrible irony is that more fiscal austerity measures will only result in a deeper depression and an even higher public debt ratio (probably going above 200% of GDP). Syriza accepted the 1% primary surplus target for this year. That is likely to require fiscal measures three times as large to reduce the debt ratio, as the economy could be 5% smaller as a result of the austerity measures and the debt to GDP ratio would jump 9% pts! That’s why the IMF may want more austerity but recognises that it will only work if it is accompanied by the writing off of some of the existing debt (as long as they get paid first!).
As Blanchard put it: “the European creditors would have to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability. We believe that, under the existing proposal, debt relief can be achieved through a long rescheduling of debt payments at low interest rates. Any further decrease in the primary surplus target, now or later, would probably require, however, haircuts.” But the Eurogroup won’t countenance that, as it would be ‘letting the Greeks off’ when others like Ireland or Portugal got no such help.
Would Greece outside the euro recover eventually? It depends on what happens to the economy inside Greece: does it stay in the hands of Greek capitalists or can labour take over; and also it depends on whether the rest of European labour can mount a successful campaign for a pan-Europe plan for growth. Under capitalism, the dark cloud of a new recession is on the horizon. If that materialises, the very existence of the Eurozone is threatened.
In my last post on Greece
I said it was ten minutes past midnight for the Greek government and the Eurogroup credit institutions in getting an agreement to release outstanding funds so that the Greeks can meet their obligations to repay the IMF and the ECB loans over the next few months. Remember all these tortuous negotiations are not about ‘bailing out’ the Greek people but simply to avoid the Greeks defaulting on their government debts to the ‘Troika’ (the EU, the ECB and the IMF). None of this money will go to improve or maintain real incomes, public services and pensions for Greeks.
As I write , with less than two weeks to go before the Greeks must make another payment to the IMF, there is a total impasse, with each side waiting for the other to blink and concede. And nobody’s blinking.
Alexis Tsipras, the Greek…
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