Five years and five rescue packages into Europe’s
sovereign debt crisis, the eurozone – and the world – pays scant attention to
the country where the financial panic first began.
After being lent hundreds of
billions of euros by its neighbours, Greece, no longer perceived as a threat to
the eurozone’s integrity, struggles in its misery out of the public limelight.
This should not be so, if only because Greece’s
experience teaches valuable lessons despite its differences from other troubled
countries. The International Monetary Fund’s latest scorecard on the adjustment
programme, published on Monday, suggests glimmers of good news amid the
suffering and continuing false starts.
The programme is achieving some of its economic
objectives: the primary fiscal balance has improved by 10 per cent of national
output, which must count among the biggest peacetime adjustments in history.
The current account has improved by as much. The IMF thinks Greece has closed
two-thirds of the competitiveness gap that opened after it joined the euro.
Banks are finally being recapitalised, which may end the credit crunch.
However, the cost has been devastating. Output has
fallen by more than 20 per cent. Unit labour costs have improved through cuts
in wages – and thus standards of living – rather than increased productivity.
The social costs are immeasurable and their effects will unfold for years to
come.
There was no way for Greece to continue to consume
beyond its means. As the IMF points out, without the much-resented rescue
loans, the adjustment would have had to be even more radical – more abrupt cuts
or the chaos of an uncontrolled euro exit. But the awful starting point did not
preclude a better outcome. The eurozone could have accepted greater and earlier
private sector haircuts. And Athens’ choices created more pain than was necessary.
So the suffering of innocent Greeks must be blamed not
only on the excessively fast fiscal cuts, but on the choice to keep protecting
the already privileged while shifting the brunt of the burden on to the
slenderest shoulders.
If there is a bright side, it is that Greece has many
opportunities for growth. But without a deeper political transformation these
will remain locked – and continued extensions of Greece’s debts at below market
terms will be needed as the IMF warns. The eurozone and ordinary Greeks share
an interest in finally prying loose the grip of insiders on the state.
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