Greece Bailed Out, But Austerity Measures Will Hamper Recovery
By Ben Cohen: Europe has bailed out Greece (again) in a historic deal that guarantees the bankrupt nation 130 million euros. From the NY Times:
Greece finally secured its second giant bailout early Tuesday after euro zone finance ministers agreed to save it from bankruptcy in exchange for severe austerity measures and strict conditions.
After more than 13 hours of talks, the ministers approved a new bailout of 130 billion euros, or $172 billion, under which private investors in Greek debt will take even steeper losses than expected to help stave off the country’s imminent default.
The Times article is worth reading in full as it gives a broad outline of the negotiated deal. The austerity measures are extremely severe, and given the country’s history of trade unionism and generous welfare state, it won’t go down well at all. The article continues:
According to a detailed agreement for the bailout, Greece will make big spending cuts, including reducing pharmaceutical expenditures by more than $1.3 billion in 2012 through increased use of generic medicine, cutting overtime pay for hospital doctors by at least $66 million, saving $396 million in military procurement and saving nearly $40 million by reducing the number of deputy mayors and their staffs.
The 50-page agreement also lays out in detail the changes to be made to Greece’s notoriously weak tax collection system.
Reforming the tax collection system is obviously a good idea – particularly if it targets Greece’s ultra wealthy (who pay little to no tax at all), but the huge cuts across the board will ensure the economy stays depressed for many years to come.
We’ve seen this game before; country goes into recession and has trouble paying its debts, creditors come in with money and force country to slash its budgets and privatize everything, country goes through massively prolonged depression.
The IMF and World Bank did this to Latin America during the 1970’s and 1980’s, Margaret Thatcher did it to Britain under her rule, David Cameron is doing it to Britain now, the American economy has performed dismally due to an insufficient stimulus etc etc. Why anyone thinks the results will be different in Greece is baffling beyond belief. We know how to restore a country to economic health. The US did it after World War II where the Marshall plan gave Europe the funding to restore its industries and create a growing and broadly integrated economy. It is happening in China where government spending has created the fastest growing economy on earth. It isn’t rocket science yet modern governments, no doubt in collaboration with global financial institutions, insist crippling countries with debt and austerity measures. In the short term, this works for the creditors, but in the long term, everyone suffers as countries like Greece fall way short of their potential and cannot create sustainable wealth for themselves or anyone else.
Obviously the Greek bailout is better than no bailout, but it could have been done fairly with some long term objectives in mind. But in the modern global economy, no one cares about the long term. There simply isn’t much immediate profit in it.