Greece Exits its Bailout but Remains Shackled by Debt and Austerity
Thursday, August 23, 2018
DIMITRI LASCARIS: This is Dimitri Lascaris, reporting from Montreal, Canada.
Yesterday, the eurozone and the Syriza-led government of Greece’s Prime Minister Alexis Tsipras announced with much fanfare that Greece had finally exited its bailout. The bailout amounted to 289 billion euros over an eight-year period commencing in 2010. The bailout has left Greece with a crushing debt amounting to approximately 180 percent of GDP. Moreover, and as The Real News has previously reported, the bailout loans were conditional upon the Greek government imposing extraordinarily onerous conditions of austerity on the Greek people. That austerity resulted in an unprecedented 25 percent contraction in Greece’s economy, soaring unemployment and poverty, a massive brain drain, and sharply increased rates of suicide.
To announce the bailout exit, Prime Minister Tsipras travelled to the Greek island of Ithaca, the home of the legendary Greek hero Odysseus. Odysseus is the misnamed king whose arduous ten-year travels are immortalized in Homer’s Odyssey. Speaking from Ithaca, Prime Minister Tsipras declared that, quote: “Since 2010, Greece has undergone a modern Odyssey. Ithaca is just the beginning. Now we have reached our destination. The bailouts that carried with them austerity and recession, and turned our country into a social desert, are over. Our country is regaining its freedom to define its own fortunes and future like a normal European country, without having policies forced on it by foreign officials, with no more blackmail, no more sacrifices for our people.”
But has Greece’s government truly regained the freedom to pursue economic and social policies that enjoy wide support among Greek voters? Now here to discuss this with us is Costas Lapavitsas. Costas is a professor of economics at the University of London. In January of 2015 he was elected as a member of the Greek parliament for Syriza. In that election, Syriza won and formed the government for the first time. But in August 2015, a mere six or seven months later, following the decision of Alexis Tsipras to ignore the results of an anti-austerity referendum, Costas defected from Syriza to the newly formed Popular Unity Party. Thank you for joining us again on The Real News, Costas.
COSTAS LAPAVITSAS: Thank you for inviting me. It’s a real pleasure to talk to you.
DIMITRI LASCARIS: So Costas, based on the statements we are hearing from Greece’s government- and you heard some of them off the top, and I’m sure you’ve been reading about them- one would think that the Greek government will now enjoy the same level of policy freedom as other eurozone governments. In fact, however, Greece has made budgetary commitments to its creditors that extend years into the future, in particular with respect to its primary surplus. Please explain what the primary surplus is for those members of our audience who don’t know what future commitments Greece has made in regard to its primary surplus, and what you expect the economic consequences to be of Greece having to achieve those primary surpluses.
COSTAS LAPAVITSAS: Greece is formally obligated to ensure primary surpluses of three and a half percent of GDP annually for the next four years, to 2022. Primary surpluses are the surpluses the government must make before paying interest on its national debt. These surpluses can only be made by imposing heavy taxes, by cutting public expenditure. That’s the way to do it. After 2022, Greece is formally obliged to ensure primary surpluses of more than 2 percent annually until 2060. Yes, you’ve heard this right. Until 2060.
This is basically the substance of austerity. That’s what austerity means. Austerity means imposing taxes, cutting expenditure, to make sure that the surplus results, out of which creditors can be paid. Greece then is formally obligated through treaty, an agreement to make the surpluses. That severely limits the freedom of the government, this government or any other government that will follow, that will comply with these regulations to adopt independent economic policy. So Greece will not be like the other European countries, even on this score, just the score alone.
On top of that, Greece has got a public debt in the region of 180 percent of GDP. Yes, you heard this right, 180 percent of GDP. Which basically dictates the policies that the country will follow, because it has to be serviced. Because this government and other governments have accepted the need to service it. So that also acts as a very heavy constraint on the government. Now, this is not mere analytics or suppositions or surmising what might happen. The current government has signed up already to get a fresh round of cutting pensions in January 2019, and another round of raising taxes in 2020. These are obligations he has to fulfil. And these follow from the constraints that I’ve just explained. So under no circumstances is Greece in the same position as other European countries.
Finally, in terms of monitoring by the lenders, which was the reality of the last few years, because of these onerous obligations on the part of the country, Greece will be subjected to more severe monitoring than other European countries, with quarterly visits by the troika to examine its accounts and so on. The next visit is planned for the 10th of September, in about two, three weeks’ time.
DIMITRI LASCARIS: So therefore the ongoing, the intense supervision is by no means over, obviously. I want to talk to you a little bit about the debt. You raised the question of the debt. Is Greece’s debt any more sustainable today than it was before it purportedly exited from the bailout? And if not, is there any credible plan on the table between Greece and its creditors for the kind of debt relief that Greece would require in order to in order to render that debt sustainable?
COSTAS LAPAVITSAS: I want to make a couple of things clear about Greek debt, because so much has been written, spoken, and said during the last few years. Greek debt remains enormous. I mean, public debt remains enormous. However, its composition, it’s burden, and its implications for the economy are very different now to 2010 when this crisis broke out, and it’s very important to understand this. In 2010, Greek debt was actually a smaller proportion of the country’s gross domestic product, of a country’s economy. The debt was under Greek law. And it was owed primarily to private lenders; banks and various others who had lent money to the Greek state. It’s a very different beast to now. Greek debt now is actually bigger, in absolute terms. It’s bigger in relative terms, because Greek- the Greek economy has contracted dramatically. So it’s much bigger, proportionately. And it is debt that is under British law and owed to official lenders. Fundamentally owed to other states. It’s a very different type of debt.
This debt has just been rearranged in the way that the lenders chose to rearrange it. The lenders, incidentally, had promised Greece that if it applied the austerity and if it complied with the terms of the bailout, they would be generous when it came to lessening, likening the burden of the debt. Well, they were not. The terms that they offered Greece were basically terms of essentially extending some of the maturities of this vast debt, and making sure that there would not be heavy payments until 2032. The country was given a period of fairly light payments until 2032. But the weight of the debt is still there. And because it has to be sustainable in the eyes of the lenders, the country has to follow the austerity policy that I mentioned to you before. It has to secure that three and a half percent primary surpluses, and so on. The debt, then, acts as a ball and chain on the Greek economy, and it will act so for decades to come.
But in the medium term, it’s not as pressing as it was in 2010. It doesn’t threaten to finish off the Greek economy and to make the country go to default from week to week as it did in 2010, because its composition has changed and because the payments and the maturity have been changed.
DIMITRI LASCARIS: Let’s talk about the current state of the Greek economy. The economy does appear to be growing, albeit modestly, and various eurozone officials and Greek government officials have been crowing about the current economic expansion in Greece. What do you say about that economic expansion- in particular, its relationship, if any, to cyclical growth across the eurozone? Is this, is this meaningful, particularly in light of the contraction? The severe contraction in the economy that we’ve seen? Is it sustainable? Is it something that is simply a broader trend in the eurozone, or is it peculiar to the conditions in Greece?
COSTAS LAPAVITSAS: It’s a mixture of all these things, as is often the case with this kind of economic phenomenon. I want to say a few things, however, to explain the nature of the outcomes that these bailouts have led to. Because it’s eight years, a tremendous period of intervention and policy applied to and imposed on Greece by the lenders and by the foreign powers. The Greek economy in 2010, under the heavy weight of its debt, faced two tremendous immediate problems: A vast fiscal deficit; in other words, a deficit of the government. And a vast external deficit; in other words a deficit of the economy as a whole. Imports, exports, and services coming in, services being exported. These two deficits, together with the debt, threaten default. And there was the immediate passing danger for the Greek economy.
The bailouts, eight years of bailouts, essentially dealt with the problem of these two deficits. And of the debt, after a fashion. That’s what they did. That’s what the lenders were interested in, and that’s what they did. They imposed austerity on the country, cut expenditure, dramatically imposed extremely heavy taxes, created unemployment, and so on, in order to deal precisely with these twin deficits. And they did. They did in the most brutal, the most clumsy, and unsophisticated way possible, by making the country poorer. That’s what they did. They clobbered the country very heavily. Its people, its society, its welfare state, it’s productive structure. They forced bankruptcies, failures, unemployment, and so on. They made Greeks much poorer. And in that way, they stabilized the fiscal deficit. There’s no fiscal deficit in the country anymore, there’s a fiscal surplus. And they stabilized the external deficit. There is a deficit, but it’s much, much smaller. It’s not, it’s not a vast problem at the moment.
So the Greek economy has been stabilized. The bailouts, in this respect, have been successful. The lenders have attained what they wished to attain, which was that: To stabilize the economy so that Greece would not be a threat to the eurozone, and so on. That’s been a great success. When we look at the Greek economy, however, and Greek society, we realize the true cost of all this. The social cost has been vast, of course. Vast. The health system has been completely disrupted. Education has been entirely disrupted. Unemployment has been phenomenal. The destruction of the productive fiber of the country has been vast. This has been the longest and deepest recession in decades. Much worse than the Great Depression in the United States in the 1920s. But worse than that, much worse than that, is the kind of economy that has emerged out of it; the kind of state of the Greek economy right now.
And that’s what I want to spend a little bit of time on, because it’s important to understand that. The lenders presumably imposed the bailout loans in order to make the Greek economy more efficient, and to make sure that Greece will enter on a growth path of prosperity and all these other fine words that they often use. When you look at the Greek economy right now, it’s anything but that. Anything but that. It’s actually a tremendous failure. The structure of the Greek economy is pretty much the same as it was back in 2010. Nothing has changed. It’s an economy of primarily services, of low productivity and low competitiveness. Industry has been dramatically shrunk and hit very hard; of low competitiveness, again. And of agriculture, which is low productivity and cannot survive, fundamentally, in the world market.
COSTAS LAPAVITSAS: This economy has got negative net savings. In other words, it hasn’t got the capital to invest. It doesn’t generate the capital to invest. And it has got banks that are basically dead on their feet. Greek banks have got non-performing loans; 45 percent of their total assets. These are ghosts. They’re not real banks. So they cannot write the credit that is necessary for investment to take place. So investment has collapsed. There is no investment in Greece. The capital stock is not even replenished. It’s basically dying away.
On top of that, 400,000 Greeks- Greece is a small country. It has a population of 11 million- 400,000 Greeks during the last few years have emigrated. These are Greeks who are very well trained. These are the best in the country. They’ve emigrated because they cannot live in the country. And that, of course, weakens the prospects for growth. Because if you don’t have trained labor, how can the economy grow?
So both on the side of capital and from the side of labor, the prospects of growth are basically non-existent. That’s the economy that the lenders have created. And that’s an economy of basically older people burdened by huge debts who will have very low growth. It’s a very unequal economy. It’s basically a marginal economy. Greece has been marginalized. That’s what’s happened. It’s become a marginal, weak Balkan country in the last eight years.
DIMITRI LASCARIS: Well, we’ve been speaking to Professor of Economics Costas Lapavitsas, former Greek parliamentarian for the Syriza party before defecting to Popular Unity. Thank you very much for joining us today, Costas.
COSTAS LAPAVITSAS: Thank you.
DIMITRI LASCARIS: And this is Dimitri Lascaris, reporting for The Real News.