In bad faith | Ashoka Mody at Bruegel.org

Pretty damning stuff. Those that smugly, glibly, heartlessly, self interestedly , and ignorantly witter and astroturf about Greece needing to do X Y and Z might want to read this. But then that might challenge the closeness of their minds.

Below the concluding paragraphs..

 

We may not like the conclusion, but it is quite simple. Greece has not grown and prices have fallen because that was to be expected when persistent austerity is laid on top of an unsustainable debt. The debt-deflation spiral always outpaces the returns from structural reforms. As certainly as these things can be predicted, on the path set out by the creditors, the stakes will continue to be escalated: the debt-to-GDP ratio will continue to rise, the calls for more austerity will grow, and, as the pattern repeats, more debt relief will needed.

So we arrive to the present. The IMF looks back at its diagnosis in November 2012 and says, the Greeks did not follow our advice; it is no surprise that they are in a mess and they need more debt relief. The truth is that the Greeks are in a mess precisely because they followed the IMF’s austerity advice and because the promised elixir of structural reforms was illusory.

And the double indignity is that the IMF now wants the Greeks to do more austerity in the midst of a debt-deflation cycle because it chooses to misread the evidence of the past years. If that advice is, in fact, followed, it is nearly certain that the Greek debt burden will be greater in two years than it is now.

We may cast a moral and political spin on these facts. Indeed, it is understandable that political considerations will play a central role in the European dialogue. But the economic logic is relentless. And the IMF’s role—its only role—is to render the economic logic transparent for informed decision making. In disregard of generations of fine IMF economists and research, the IMF has engaged in its own moral posturing to retrieve its money and hide its failures.

To be clear, the argument is not that more debt relief be promised in exchange for more austerity now. The argument is that debt relief is needed now to prevent the need for even more debt relief later. It is as much in the creditors’ interest to change course as it is in the Greek interest. Once that premise is accepted, then within that basic framework there is much that the Greeks can do to improve their lot. But such is the momentum, the politics will almost surely subordinate the economic logic. That would be a mistake. At what is surely a pivotal moment in European and global history, at least the facts must be laid out transparently.

via In bad faith | Ashoka Mody at Bruegel.org.

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2 thoughts on “In bad faith | Ashoka Mody at Bruegel.org

  1. Peter Lerner

    EU commanded Greece to destroy its freight industry (now in the hands of Danes and Norwegians), shipbuilding and fishing. Mines were closed ostensibly to comply with EU environmental standards. Instead of buying
    cheap, secondhand Japanese and Korean trawlers, Greek fishermen have to order new Finnish, which they can’t afford. Instead of building power plants running on cheap Russian gas, they have to buy overpriced electricity from Bulgaria in the name of Atlantic solidarity. This “restructuring” was the real reason for the immense Greek debt.

    All what remained for Greece in the racial vision of Schauble & Co. –all high value added industries must be in the hands of the Nordics–is tourism and hospitality. Collapse of the real economy is the ultimate cause of the Greek economic tragedy.

    Reply
  2. Patrick McCarthy

    Hi Brian,
    I was just reading Paul Krugman’s blog over at the New York Times (http://krugman.blogs.nytimes.com/). In his article “Jeb and the Nation of Takers”(July 11th), he mentions Jeb Bush’s policy i.e. In order to get to 4% economic growth forever, people need to work longer hours. I couldn’t help but wonder is this what is behind Ms. Joan Burton’s cut to loan Parents in what she casts as a “labour-activating” measure. Admittedly, it has been a “burden” for the country as a whole to support those on unemployment, but is this really the way to go for Joan?

    Reply

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