Michael Roberts Blog : Greece: it’s unsustainable

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Michael Roberts Blog : Greece: it’s unsustainable


 So the Greek parliament has approved the terms of the Memorandum of Understanding (MoU) with the Euro credit institutions for a third bailout deal valued at €86bn over three years (Greece MOU ( https://thenextrecession.files.wordpress.com/2015/08/greece-mou.pdf ) ).  The terms of the bailout funding commit the Greek government to a new round of austerity measures, including pension cuts, tax increases, a ‘fire sale’ of state assets, a reduction in labour rights and an end to minimum wage rises and a reversal of public sector re-employment.
No wonder about 32 Syriza MPs voted no to the deal and another 11 abstained.  That means that the Tsipras government would not command a majority in parliament in any confidence vote if that rebellion was repeated.  Tsipras plans an emergency Syriza conference in September and then will probably call a general election for the autumn.  That adds a new political uncertainty to the implementation of this deal.

But that is not the only uncertainty.  The economic uncertainty is whether, even if the Greeks follow the deal to the letter, it will work to reduce Greece’s public sector debt burden, restore economic growth and reduce unemployment and reverse the drastic fall in living standards.  The answer to that question is clear.  It won’t.

The IMF is not prepared to provide any further credit as part of this bailout because it does not think that Greek public sector debt can be stopped from rising as a share of GDP and that the Greeks can ever service it by borrowing from the market.  In other words, the debt is ‘unsustainable’.  And in its latest analysis, the EU Commission experts also agree with the IMF.

Here is the summary statement from the IMF released just today on the Greece’s public sector debt sustainability: “Greece’s public debt has become highly unsustainable. This is due to the easing of policies during the last year, with the recent deterioration in the domestic macroeconomic and financial environment because of the closure of the banking system adding significantly to the adverse dynamics. The financing need through end-2018 is now estimated at Euro 85 billion and debt is expected to peak at close to 200 percent of GDP in the next two years, provided that there is an early agreement on a program. Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.”  That could not be clearer (IMF on Greek debt ( https://thenextrecession.files.wordpress.com/2015/08/imf-on-greek-debt.pdf ) ).

So the Greeks are being subject to further severe austerity in trying to run surpluses on the government account (before interest payments) rising to 3.5% of GDP by 2018 – to no avail.  Indeed, the IMF says in its statement that “Greece is expected to maintain primary surpluses for the next several decades of 3.5 percent of GDP. Few countries have managed to do so”,  Yes, the IMF says, it  is decades of austerity!

Both the IMF and the EU Commission reckon that the Greek government debt ratio, currently around 180% of GDP, will probably rise to over 200% of GDP  before there is any sign of a fall and will anyway stay well above any level that is considered ‘sustainable’.  So the whole thing is a waste of time and pain.  No wonder German finance minister Schauble wants to forget it and let Greece take a ‘holiday’ (for at least five years) from the euro – see my post,https://thenextrecession.wordpress.com/2015/07/26/grexit-de-long-and-the-wages-of-sinn/.


Post       : Greece: it’s unsustainable
URL        : https://thenextrecession.wordpress.com/2015/08/14/greece-its-unsustainable/
Posted     : August 14, 2015 at 2:38 pm
Author     : michael roberts
Categories : capitalism, economics

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