Greek sovereign debt crisis and Ecuador (Speech in Quito, 15/2/2012)

Firstly, I would like to thank you very much for the invitation to this very interesting congress. Your ambitious effort for the formation of a financial architecture different to the IMF’s shows that there are real alternatives to the nightmare without end that the peoples in the peripheral countries of Europeare currently living in. I’m speaking about Greece, Portugal and Ireland and as of late, Italy and Spain.

The common element in all these cases is a very big public debt and an equally big budget deficit which, in the aftermath of crisis of 2008, was characterized as unbearable and unviable. Under the threat of imminent derailment of public finance (something that actually was never proved to happen) during the last two years, Europe lives under the iron heel of the most severe, the most inhuman austerity measures that have been imposed in our region since the post war period.

I’m describing their common characteristics:

  • Cuts in social spendings and especially to health, education, social security and transportation
  • Cuts in wages, salaries and pensions
  • Privatizations of public utilities (water, energy, etc.) and a massive sell-off of public property, and
  • Increases in every kind taxes that are paid by the people.

These measures are deeply unjust because the roots of this current crisis aren’t in the generous welfare state of these countries which never had high wages or well-equipped hospitals.

The root of the current sovereign debt crisis must be trailed to the following causes. I’m speaking specifically forGreece, in the sense that these causes aren’t the same with other eurozone countries that suffer from bail-out mechanisms. In any case there are serious similarities between all these countries.

  • Tax cuts for the rich and the private sector, in the context of a neo-liberal agenda that has been imposed since 80’s throughout the world. But especially in continentalEuropeits implementation started in the 90’s under the Maastricht Treaty which laid the fundamentals for the eurozone.
  • Current payments for the servicing of the debt. For example Greece (with a GDP of 212 bn of euro, according the state budget) during 2012, which is the fifth consecutive year of recession, will pay 87 bn of euros for servicing of debt when tax revenues will be 53 bn and will give for education 5,7 bn and for public health 4,8 bn. Looking at the previous years, Greece during the last two decades has paid for the servicing of the debt twice the amount of the debt in its today level of 360 bn euros.
  • Increasing military spending through all the EU countries which serve the imperialistic plans ofGermany. EspeciallyGreeceas a result of the turkish enemity and demands of NATO gives a scandalous, totally disproportionate percentage of its budget for military spending.

It is obvious that if someone wanted to confront the sovereign debt crisis one should confront the previous reasons: i.e. increasing the taxes of rich and corporates, to stop servicing the debt and reduce the military spending.

In spite of these possible solutions, the European ruling classes imposed the most brutal austerity packages and, at the same time, gave huge amounts to the banks, leading to the explosion of the fiscal problems. For example in Greece the first bail-out loan was 110 bn of euros, but at the same time the Greek finance minister has made available for Greek banks 155 bn of euros, either in the form of cash or in the form of guarantees. As a result Greek debt which was 115% when government decided to call on the IMF is now 165%!!!

Just the same happened inIrelandwhen the government announced the bail-out of the private banks. In this way, nationalizing the private losses, the Irish government led a public debt of 30% of GDP to the sky: 130%. The hypocrisy of the European (centre-left and right-wing too) governments could be seen inSpainwhere the public debt (61% of GDP) is significantly lower, even to that ofGermany(83%) in the 2010.

And after of all this, the European Commission contests that the rescue programmes failed because they have not been implemented with the adequate strictness. So they ordered increased instalments of the same poisonous medicine. It is striking that this doesn’t happen only inGreece, which is characterised as a bad pupil due to the combating heritage of the labour movement and the Left. In Greece failure was observed before anyone else because Greece was the first to face the test of IMF and EU conditionality in May of 2010, in the northern hemisphere and specifically in Eurozone. But now the exact same failure can be seen inPortugalwhich entered the bail-out mechanism in May of 2011, where the interest rates have reached the record level of 14% and the government discusses withBerlina new bail out loan!

After of all this, there is a question: Can we speak about failure even inGreecewhere the last memorandum of understanding which accompanies the new loan of 130 bn of euros is the seventh from May of 2010 when the first one was signed?

By my opinion, no! The bail-out plans had no intention to save the Greek or Irish economy and even less to secure or improve the living standard of Portuguese or Spanish people. The aim was to close the parenthesis that opened in the first post war period, whenEuropecovered in the shame of colonialism, bought out the labour movement with the welfare state. In this struggle, (which embodies the response of capital to the current structural crisis) the ruling classes – governments and financial organisations, like IMF and ECB  – use debt as a very good opportunity for paralysing peoples’ reactions.

The response of the big majority, of the 99% to use a current political terminology, must be the following slogan that is said in every square of Greece: we don’t owe, we don’t pay we don’t sell.

In this struggle, the audit of public debt offers a huge help as it contributes to the de-ligimitation of the public-debt. By asking to open up the books of debt, as primarily a struggle from within the social movement, and not coming from the technocrats, we have cancelled the methods of shock and awe that are based on the ignorance of the people. In this struggle there is something else that is also very significant: The living example of countries like Ecuador which refused to accept the orders of the creditors. Respecting the very big political, economical and historical differences, we want to do just the same thing in Greece and all the other eurozone counties that are on the brink of collapse because of their indebtedness.

Nowadays Ecuador’s example is much more of a teaching than a year ago, when we were making the film Debtocracy and showed to Greeks and other people that TINA (there is not alternative) had died in the Andean heights. Now, the Greek drama has shown that every solution that is based in the compromise and the negotiations with the creditors and the international financial organisations leads to unemployment, poverty, neocolonial loan agreements, police brutality, constitutional coup d’etats and finally at default. At the other side cessation of payments and debtor-led defaults may be the first scene, our first success in this, long duration play to overthrow the attack of capital.

Exit from eurozone – EU, response to the crisis of euro (Rosa Luxemburg workshop)

Contribution (based on relevant questions) on Rosa Luxemburg workshop: “Crisis, Crises, the Crisis of the Euro – Alternatives of Sceptical Optimists” (16-17.12.2011)
  • The upgrading of economic and currency union as the central pillar of the“European project” reveals the deeper aim from the formation of European Union: The broadening of vital space for the German capitalism and other capitals which have the advantages against the weaker capitalist formations. Current problems of monetary union show the contradictory nature of the euro as it is the first currency without a national state and a common fiscal policy.
  • The Euro Plus Pact, as the response of european capital to the sovereign debt crisis, clarifies that the only acceptable reform of EU and Eurozone is in a totally different direction from which European people demand.
  • The response to the crisis of euro will cause the biggest reform in the nature of EU. Its most striking character will be, first, the explosion the democratic deficit, as European peoples will not be asked for these reforms (under the fear of a storm of “No”). Second, they will lead to the demolition of workers and social rights. Wages, pensions, working hours, welfare states will be in doubt with the excuse of confronting the sovereign debt crisis. They will try to close the parenthesis that opened the first after-war period as a result of the peoples struggle and the global competition.
  • Different parties of Greek Left had not the similar opinion against Maastricht Treaty. But the majority said “No”. Especially, there are three currents of the Left: Communist party, which has the bigger electoral percentages, Coalition of Left and Progress and Revolutionary ex-Parliamentarian Left. Communist Party said “No” as traditionally, since the entrance of Greece in 1981, was against EU. Coalition said by majority “Yes”, although there were massive currents in the party who were saying “No”. Revolutionary Left had said “No”, arguing that “Europe without frontier” under these circumstances means “exploitation without limits”.
  • The adoption of Maastricht Treaty in Greece led the ruling class of Greece to show the public finance’s discipline (alongside with spending cuts, privatizations, etc) as the most crucial aim of budget management.        In this sense, Maastricht Treaty in Greece meant bloody austerity measures from the decade of 90’s and the shielding of monetary policy as a means to prevent the intervention of working people in the formation and direction of this side of economic policy.

In Greece, European Union alongside with IMF had a protagonist role in the formation and applying of the bail-out plan and the accompanying austerity measures. In this sense intervention of European Union and much more of Germany in the daily economic and political life of Greece has been reached levels which we have never seen again with the exception of the last war. The most striking case was the Task Force that has been formatted in Athens which is headed by German Horst Reichenbach, who is called as “gauleiter” even by mainstream press. As a result of all the above, Greek people blame EU (which has been proved more strict than IMF) for the social genocide and economic occupation.

Euro Plus Pact’s provisions have many commons with the Memorandum of Understanding that Greek government signed with Troika.

  • From the onset of the crisis the whole Left in Greece gave a heroic struggle to stop this attack of European capital. In spite of this there are remaining different approaches that are related with EU’s nature. Especially Coalition of Left believes that EU can change, even now, in a progressive direction. At the other side, Communist Party and Revolutionary Left too believe that these changes are permanent reflecting in institutional level historical and reactionary transformations of nowadays capitalism.
  • Not only in Greece but alongside the European periphery has been proved that monetary union was a failure of historical dimensions. Euro failed because, among many others, the common currency increased periphery’s budget deficits and public debts as a result of the expansion of German capital. Sovereign debt crisis is the price that periphery paid for the surpluses of core countries. In this sense a left alternative must include three terms: First, exit from Eurozone and EU as a precondition for applying of distribution policies. Second, abolition of pubic debts with the help of audit commits which will prove that this debt must not be paid by the peoples because, at least by its biggest shares, it is a product of corruption or the functioning of irrational markets. And third, increases to the wages and salaries and generous subsidies to the public services (health, education, security system, transportations, etc).

These demands can unify not only the peoples of European periphery who have paid the biggest price because of the austerity measures the last two years but have the ability to unify peoples from periphery with peoples and working class from the core countries. We don’t forget that the domino effect of pan-european austerity began with Agenda 2010 and Hartz IV labor reform under the government of SPD before a decade. In this context Left and labor movement of Germany has a unusually big share in the nowadays battle to answer the question that Rosa Luxemburg formulated: Socialism or Barbarism!

Breaking up? A route out of the eurozone crisis

Research on Money and Finance, Occasional Report 3 // November 2011

C. Lapavitsas, A. Kaltenbrunner, D. Lindo, J. Meadway, J. Michell, J.P. Painceira, E.Pires, J. Powell, A. Stenfors, N. Teles, L. Vatikiotis.

http://www.researchonmoneyandfinance.org/wp-content/uploads/2011/11/Eurozone-Crisis-RMF-Report-3-Breaking-Up.pdf

Nominal and Real Aims of Austerity Programs: the Greek (extreme) Case

Leonidas Vatikiotis & Petros C. Kosmas (International Conference: Neoliberalism and the Crises of Economic Science, Istanbul May 2011)

Abstract

One year after the adoption of the Memorandum between the Greek government and the IMF-EU, many official data allows us to check, whether the objectives were implemented for which imposed. The dominant opinion in Greek political circles supports strong cuts, which will in exchange save the Greek economy from relying on the high cost of borrowing on the financial markets. This report examines the detail of the adjustment programme ofGreeceand leads to the opposite conclusion. In particular we examine: Firstly, the reasons invoked to legitimize the society the use of IMF-EU. Secondly, the measures implemented this year. Thirdly, the real causes of the Greek financial crisis. Fourthly, these results were provided in terms of social measures and the conclusions were reached in relation to the real goals of austerity. On this basis we argue that the real challenge was to improve fiscal imbalance, but with a major shift in macroeconomic policy that will allow to increase the profits of capital. Finally, reports in direct workable proposals have been produced that can solve the debt crisis faced byGreeceand the mean improvement in the position of the social majority.

1. Nominal aims

In May 2010 the government ofGreeceagreed with the IMF-EU for a set of economic austerity measures, which is supposed to solve the financial problem inGreece.

The basic outline of the financial problem inGreeceis defined by a combination of high debt and fiscal deficit. Specifically, in 2009 and 2010, Greece’s government debt to GDP ratio was 127% and 143% when the average mean of the 17 countries of the Eurozone was 79% and 85% and the of EU 27 was 74% and 80% of GDP respectively. And the budget deficit in 2009 and 2010 was 15% and 11% of GDP when the corresponding mean for the EU-27 was 7% and 6% of Eurozone’s GDP for both years (Eurostat, 2011).

The action mechanism of EU-IMF inGreeceaccelerated by rising interest rates, which made it unusually expensive to be prohibitive to fund borrowing theGreekRepublicand this in turn by the continuing degradation of the Greek economy from the credit rating agencies.

The resort to IMF- EU and the measures that accompanied the four Memoranda to date have been applied to correct these distortions.

2. Measures that imposed by IMF–EU

  • Outlining the measurements that have been imposed until today in order to confront the crisis of the public debt we observe that they concern:
  • Reductions in wages in the public and private sector by removing working allowances and cropping the 13th and 14th salary.
  • Against insurance law with reduces pensions and promotes the contributory system.
  • Sharp reduction in social expenditure having as a direct consequence the closure of 1056 schools – something unprecedented in the history of the Greek public sector, the dismantling of public health, as shown by the “working on the limits” of historic public hospitals and clinics and the shrinkage of public transport.
  • Dismissal of tens thousands of contracted employees meeting fixed and permanent needs in the broad and narrow public sector by not renewing the contracts.
  • Abolition of collective bargaining agreements and transferring the weight of trading in an increasingly low level: from the collective – in general area, then to the operational, and finally to the individual, where reigns the employing and managing arbitrariness.
  • Abolition of the institution of arbitration.
  • Increase the working hours in the public sector.
  • Reduction of compensation in order to facilitate redundancies.
  • Increased indirect taxation and in particular of the VAT and excise duties at the same time reducing the tax rate from 24% to 20% for business.
  • Facilitating business activities of multinational corporations and limited liability companies through the liberation of closed professions.
  • Sell-off public assets by privatization programmes of 50 billion euros, which were announced by the Troika, when its existence was initially denied by the government ofGreecein a categorical manner.

3. Real causes of Greek sovereign Debt Crisis

The evaluation of the real goals of the austerity programs requires the examination of the actual causes of the Greek budget crisis which are seven in total.

3.1 Measures to tackle Depression

The collapse of Lehman Brothers in September 2008 increased the interbank interest rates, limited bank financing in the economy, reduced the consumer spending as well as the public and the public tax revenues in all EU countries. Furthermore, the government intervention aiming to mitigate the effects of the crisis increased public spending and widened the gap across the EU. This situation is much worse inGreece, where from 2008 until now the banks have absorbed a total of 108 billion (of which 85 billion. were guarantees and 23 billion. were cash or equivalent bonds). Likewise, the 20 most developed countries in the world were confronted with a comparable situation. Consequently, the only times in history that recorded a similar increase in debt to that of 2009 (13%) where in time of war and especially in 1944: 22% and 1919: 14 % (IMF, 2010).

Comprehensively, it is estimated that the current crisis in advanced countries led to output loses of 25% of GDP and a consequent increase in public debt of around 24% of GDP (Laeven andValencia, 2010).

3.2 Addiction of the Greek capital in Direct Subsidies

The rescue of problematic firms in the 80s and the Olympic Games in 2004 -with an initial cost of 9.5 billion and probably a final cost of 20 billion- are the tip of the iceberg of direct aid to enterprises in the form of cash. However, in recent decades the Greek companies, especially the elite, have been steadily supported by billions each year in the form of development incentive through the Public Investment Program. The scandals are fostered by accomplices of the two powerful political parties (PASOK and ND) as well as of the big companies. The latter were imposed by the Memorandum and appear to be concerned about deficits.

3.3 Privatizations

By invoking the rationalization and the reduction of the state, the government revenues lost revenue source. The most popular but not unique example is the case of OTE Telecommunications, which was sold to the German Deutsche Telecom from the government of New Democracy under completely non-transparent procedures and a price equal to the public revenue for a year.

3.4 Equipment for Defense

The amounts spent nationally on armaments gives the impression thatGreeceis a military superpower inEuropeandMediterranean.

For the purpose of illustration, when on average in the EU of the 27 spends 1.6% of GDP on armaments, Greece spends 3,3% (SIPRI, 2011), which is twice the EU average and three times more of what other neighboring countries such as the Mediterranean Europe, spend. Although this equipment is not necessary, it is however enforced by NATO and not by the national defense.

TABLE 1: Total Expenditure for Payment of Debt, in Euro (1991-2011)

 

YEAR

 

AMORTIZATION

 

INTERESTS

CONCURRENT COSTS

 

TOTAL

1991

2.703

4.203

46

6.952

1992

6.406

4.123

71

10.600

1993

4.707

6.228

135

11.070

1994

7.162

8.990

190

16.342

1995

7.907

9.098

307

17.312

1996

10.263

9.641

339

20.243

1997

10.145

8.809

308

19.262

1998

9.682

9.018

170

18.870

1999

9.251

9.290

101

18.642

2000

13.131

9.499

58

22.688

2001

11.618

9.289

39

20.946

2002

20.280

8.535

59

28.874

2003

20.763

9.208

70

30.041

2004

18.444

9.283

72

27.799

2005

20.379

9.616

71

       30.066

2006

16.589

9.441

56

26.086

2007

22.195

9.657

71

31.923

2008

26.246

11.134

72

37.452

2009

29.000

12.195

145

41.340

2010

19.510

12.950

0

32.460

2011

28.130

15.920

0

44.050

ΣΥΝΟΛΟ

314.511

196.127

2.380

513.018

Source: Ministry of Economics, Government Budgets

3.5 Low Taxes on Capital

Greecehas one of the lower reasons for tax revenue to GDP: 32.6% of GDP when the average in the EU of the 27 and the euro area is 37% and inDenmarkthat has the highest ratio of 48%. The low tax revenues are a consequence of the almost symbolic taxation of the capital.

This reflects from the great discrepancy that display the rates of capital taxation inGreececompared to the EU: the rate is 15% inGreecewhile the corresponding tax rates are 27% in the EU (Eurostat, 2010).

3.6 Participation in the Eurozone

The participation of Greece in the European Union in 1981 and in the Eurozone in 2002 initially accelerated the liquidation of capital at the expense of manufacturing, agriculture, livestock and total employment and, of course, of government revenues. Furthermore, the reason for the low rate of exports in total GDP (21%vs.40% for the euro area) should be sought in the adoption of a monetary policy that is not only inappropriate but diametrically opposite to the interests of the Greek economy. Suffice it to say that the Greek economy is required to survive in an environment of appreciation of the «national» currency by 64% within a decade (this how much the euro has appreciated against the dollar since the01/02/2002), while in the past every seven years was devaluated.

The causes of the current crisis in the Eurozone are related to the separation of the Eurozone in periphery and center respectively.  The intensification of conflicts within was a result of depressed wages policy that was followed byGermanyover the last decade (RMF, 2010).

3.7 Servicing Public Debt  

The costs of servicing the public debt between 1991 and 2011 amounted to 513 billion € (Table 1). The redemption of short-term securities or titles only in the last 9 years (2003 – 2011) amounted to 151 billion. Evidently, it is easy to conclude that over the last 20 years we have paid the debt twice. (A clear case of compound interest!)

The destructive role of the public debt on public finances is evident by the fact that tax revenues this year (52.9 billion) is more than enough for the necessary social expenditure, i.e., wages and public pensions, pension funds and financing, costs for Department of Health, Education and Defense (51.6 billion). The public debt will instead absorb interest and amortization of 62 billion. Three times more than the salaries and pensions, and ten times more than the expenses for education will be.

4. Implications to the Society and Real Aims of the Austerity Programmes 

Although it is still early there is considerable evidence of the worsening social problem inGreece, as a result of the austerity policy imposed by the IMF and the EU.

4.1 Explosion Unemployment

Based on recent evidence of the Greek Statistical Service, the official unemployment rate in February 2011 amounted to 15.9% (affecting 787.229 people). Compared with last year this was increased by 30.1% (then hit 605,277 people) [1].

4.2 Elastification in Labour Relations

According to statement by Minister L. Katseli, businesses inGreeceusing the new workplace, in 2010 necessitated the change of contract full-time flexible in a number greater by 55% compared with 2009.

4.3 Decreases in Salaries and Pensions

On the basis of a statement of the Governor of the Bank of Greece, George Provopoulos, 2010, in the first year implementation of the Memorandum wages inGreecefell by 14% and pensions by 11%. Also, the hourly labor costs inGreecein 2010 recorded a record drop of 6.5% when the EU-27 increased by 2% and the 17 euro zone increased by 1.4% (Eurostat, 42/2011).

4.4 Increases in Poverty

Based on data released last year by the Bank of Greece, the poverty rose by one quarter and now it reaches 25.07% of the population. Obviously, workers and the social majority did not benefit from the Memorandum, while the bourgeoisie was benefited by reversing gains of several decades.

Notable gains were recorded by foreign banks, in particular the Franco-German that had the highest exposure in Greek bonds. To corroborate recent evidence showing that while the beginning of the crisis involving the foreign banks in the Greek debt was around 150 billion, now stands at 50 billion. On the other hand European banks were from 115 to 40 million. More specifically, Germans and French had the greatest exposure to the Greek debt by 30 to 8 and 45 to 12 billion euros (BIS,21 April 2010) respectively. As a result of this economic policy, the main creditors ofGreecewill not risk more than a possible cessation of payments that was initiated by the debtors. In this way, the IMF confirmed its role as negotiator and organizer of creditor’s cartel, just as had happened inArgentina(Cibils, Weisbrot and Kar, 2002).

All these measures were not only ineffective but also class-biased as the crisis deepens. Witnesses: Firstly, the increase in public debt of 127% in 2009, when decisions are taken on appeal to 160% of GDP when it is supposed to complete the memorandum. Secondly, the deterioration of the reliability ofGreecewith the explosion of interest in the secondary market and the continuing deterioration of credit rating agencies.

Table 2 below shows the trend of interest rates in the time since the adoption of the Memorandum.

Table 2: Interest Rates in the Secondary Market for 2 years, 5 years, and 10 years – Greek Government Bonds

2y

5y

10y

5 May 2010

14,91%

12,48%

10,17%

5 May 2011

25,28%

16,71%

15,51%

Source: Bloomberg Generic

Thirdly, plans to restructure the debt and new loans will result in a failure ofGreeceto come to market in 2012. In conclusion, the simplicity and the Memorandum have not been applied to overcome the debt crisis, but to change the balance between the forces of labor and capital. In this occasion,Greecedeficits have been the testbed of the economic attack, which unleashed the hawk’s deficits (Polin, 2010). Also, the IMF, as in the case ofArgentinaandSoutheast Asia, proved unable to manage the crisis (Cibils and Vuolo, 2007).

5. An Alternative to the «Chemotherapy» of IMF-EU

In contrast to these measures a condition for overcoming the financial crisis and improve the position of the majority is to implement the following measures:

  • Stop paying the debt with responsibility of the debtor on the basis of emergency (RMF, 2010),
  • Exit from the Eurozone to halt the creation of deficits,
  • Devaluation of the new national currency[2],
  • Nationalisation of banks,
  • Barriers to entry and exit of capital,
  • Production restructuring of the economy.

This is a minimum set of measures on which the Greek society will leave from the position of Ulysses, who spent a decade to return from where it started, and will go in place of Prometheus, who pioneered the effect of helping all humanity.

6. Conclusions

The only thing in reality the packet of measures achieves is an important change in the ownership of the debt, where the national debt ofGreeceis transferred from European bank accounts to labour class. The claim that fiscal austerity during a recession is “economically correct”, in reality is “economically incorrect” and is designed to avoid public criticism. As far as to why, that many dominant circles support today this catastrophic policy, is simple: those circles are concern for the purpose of the capital, less for the interest of the workers and the poor, but rather they identify their interest with those of the Wall Street and the City, and the higher classes. The obvious beneficiary from the ‘rescue packet’ of the Eurozone governments will not be the Greek workers and pensioners who suffer from extreme cuts and resection, but the financial centres.

6. References

Cibils, A., Weisbrot M., and K., Debayani, (2002), ‘Argentinasince Default: The IMF and the Depression’, Center for Economic and Policy Research, Briefing Paper.

Cibils, Alan and R., L., Vuolo, (2007), ‘At Debt’s door: What can we learn from Argentina’s recent Debt Crisis and Restructuring’? Seattle Journal for Social Justice, Vol. 5, Issue 2.

EEAG (2011), Report on the European Economy, GoverningEurope.

Eurostat (2011), Euro Area and EU27 Government Deficit, 60/2011.

Eurostat (2010), Taxation trends in the European Union, Main Results.

Eurostat (2011), Fourth quarter 2010 compared with fourth quarter, 42/2011.

IMF (2010), ‘A Historical Public Debt Database’, S. Ali Abbas, Nazim Belhocine, Asmaa El Ganainy and Mark Horton, WP/10/245,

IMF, (2010), ‘Greece: Staff Report on Request for Stand – By Arrangement’, Country Report, No.10/110.

Laeven, L., and F., Valencia(2010), ‘Resolution of Banking Crisis: The Good, the Bad and the Ugly’, IMF Working Paper, No. 10/146.

Pollin R., (2010), ‘Austerity is not a solution, why the Deficit Hawks are Wrong’, Challenge, November / December 2010.

RMF (2010), ‘The Eurozone between Austerity and Default’, RMF Occasional Report, September 2010.

SIPRI (2011), ‘Stockholm International Peace Research Institute Yearbook, 2011.

 


[1]           The explosion of unemployment is the most typical failure among many other false predictions of the IMF related to inflation, the depth of the recession, etc. For unemployment in particular the IMF forecasts that this year will fall only to 14.6% (IMF, May 2010).

[2]           The option of leaving the euro and the depreciation in response to tackle the Greek tragedy is not displayed only by radical school of thoughts. It is referred for example from European Economic Advisory Group Report on the European Economy 2011: “The two options (exiting the euro and introducing a devalued drachma, the first and a radical internal depreciation, with Greek prices and wages falling sharply relative to those in the rest of the euro area, the second) impose very large costs and will not work quickly. Both will increase the burden of foreign debt expressed as a share of GDP and have dangerous effects on the balance sheets of many firms and financial institutions. An internal depreciation as large as required can certainly not be achieved without a painful and sustained contraction of the economy and higher unemployment. An external depreciation is likely to be preceded by rumours that can cause a bank run and lead to a currency crisis. There is therefore no alternative that is clearly more palatable than the other in every respect. The choice is between two evils” (EEAG Report, 2011).