Why the Greek ‘Rescue Deal’ is Neither a Rescue Nor a Deal
by Mitch Feierstein about 11 years 2 weeks ago
Most of the time, George Osborne, has the least enjoyable job in Britain. He’s got to squeeze taxpayers for more money, cut jobs and wages in the public sector, slash benefits… and his only reward will be that in five years time his government might not be bankrupt. The more rigorously he does his job, the less anyone is going to end up liking him for it.
Relief: George Osborne after the announcement of the latest Greek bailout deal
So when Osborne returns from the latest Greek bailout summit, you can excuse him for sounding a little tipsy. Talking about the fiendishly complex deal, he said, ‘I think the important thing about this deal is that they have tried to get Greece into a reasonable place vis-a-vis its debt sustainability …Of course the Greek people, the Greek political system, has to deliver really difficult decisions now but… hopefully we can all move on now and get the European economy growing.’
Well, yes. I agree. And hopefully Iran and Israel will make friends, China will promote free speech, and Vladimir Putin will find his feminine side.
Unfortunately, chancellors (and columnists) need to live in the real world. And in the real world, this ‘rescue deal’ for Greece is neither a rescue nor a deal.
It’s not a deal, because it needs to be ratified by every parliament in the eurozone. Since many of those parliaments (especially those in Finland, Germany and the Netherlands) are strangely opposed to making their taxpayers pay for someone else’s mistakes, that ratification process is far from certain.
The Greeks will also need to live with the terms of the deal. Given that they are now looking at yet more years of unfllinching austerity – and following a recession which has chopped some 17% from national income – they might decide to renege on the agreement, no matter what they say today.
What’s more, the rescue isn’t a rescue because the whole thing is built on fantasy economics – the sort of growth forecasts that would have been too barefaced even for Gordon Brown in one of his hypomanic phases. A sober report (leaked here) compiled jointly by the IMF, the European Union and the European Central Bank gets realistic about the impact of never-ending austerity on Greece’s economic prospects. The report states bluntly, ‘This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020.’
Despair? President of the Euro group Jean-Claude Juncker and International Monetary Fund Managing Director Christine Lagarde announce the terms of the deal
And to be clear: debt levels of 160% of GDP are precisely what triggered this crisis in the first place. So the end-result of this ‘rescue deal’ is, quite likely, to leave Greece just where it was to start with… except that its economy will have got a whole lot smaller and its people a whole lot angrier.
Once he sobers up, George Osborne will figure all this out for himself. (The strikingly muted reaction to the bailout suggests that everybody already knows.) But Osborne will still need to guide British policy as the crisis unfolds further in the weeks and months ahead.
And that policy should be very clear. No further British money should head Greece’s way. Not via the EU. Not via the IMF. British purses should remain closed, no matter how many more restructurings there are, no matter how many more ‘voluntary’ haircuts, no matter how many more summits, votes and crisis get-togethers.Because although the economics of crisis seem complex, their essence is simple. If you take on more debt than you can service, you have two choices. You can restructure your business (or re-energise your country) so that your debt-capacity is greater than it was. Or you can go bust.
A country can’t technically declare bankruptcy, but it can default on its debt. Explain to its creditors that they’re not going to get their money back. Sort out a payment plan – just as any overstretched household would have to do in the same position.
Neither option is easy. Restructuring economies is slow and wrenching. And default brings mountainous difficulties of its own. But they’re not our difficulties. They’re Greece’s. Osborne’s job is already hard enough. We should leave him to sort out British finances. The Greeks can take care of their own.