How to spend €220bn and wind up €20bn worse off
Another little dose of Greek reality. In Crete as of yesterday afternoon, prescriptions have been refused at all pharmacies unless customers pay the full price. It’s obvious really: if you raid the hospital bank accounts to pay off the bondholders, the hospitals don’t pay the pharmacies, and so the chemist charges full wack. I think under Friedmanite economics that would be called the market deciding.
We can be fairly certain that this development will spread across the rest of Greece; and that the only ones unaffected by it will be senior bureaucrats and politicians. But before this starts to sound like me going all Left and fluffy, perhaps now that the Greeks are having their faces ground into the mire, it’s time to return to the recurrent Slog theme, viz debt forgiveness.
All this month we have heard over and over again the sterile debate between stimulation and austerity. The simple truth is that, without debt forgiveness now, it’s too late to do either of those things. Frufru Lagarde insists that George Osborne is running out of time to start Plan B, but it was too late from Plan A let alone B:in November 2011 the Draper was forecasting 2.75% average growth from 2011-14. To say that looks sick is a bit like saying Stalin looks dead. Osborne sold us silly growth rates as the only answer to what the Slog and thousands of other sites were saying: your predecessors missed the boat, chum.
Trust me, there ain’t no Plan C. Only debt forgiveness will stop the insanity.
I’m talking financial, mathematical insanity by the way, not bleeding heart Miliband bollocks. Merkel suffers from the same problem as Lagarde: she can’t add up. Join me now on a brief trip back through time.
When Greece first announced it was in trouble, in May 2010 the other Eurozone countries, and the IMF, agreed to a rescue package which involved giving Greece an immediate €45 billion in bail-out loans, with more funds to follow, totaling €110 billion. This was to help it with a total debt of €270 billion. Had the EU negotiated then with the IIF and others – and used the bailout to forgive the debt still left after negotiation – Greece would’ve been solvent immediately.
But bankers don’t like that kind of solution. Bankers don’t accept any responsibility for their actions. Much more to the point, they don’t like the sort of fairness that might create a precedent.
Instead, there was much moralising from Berlin, and the Greek debt shot up to €350bn by the end of 2011. It did this for two reasons: first, bond markets had no faith in the Berlin-am-Brussels solution, so the cost of Athenian borrowing sky-rocketed; and second, Berlin and the IMF insisted on a f*ckwitted austerity programme that dramatically reduced Greece’s ability to repay.
The bailout in March this year reduced the debt to €240bn, mightily pissed off the bond markets, and thereby laid the groundwork for bond spikes to rise in Italy, Spain and France. With debt forgiveness, Greece’s debt would’ve been zero ten months before that. The net cost to the EU taxpayer is (just on Greece alone) in the region of €220bn.
Think about this: EU taxpayers have shelled out 89% of the remaining debt, and the sum total result is that they have, um, a 100% debt unpaid. For the Greeks themselves (see below) the cost has been even worse.