Joe Stiglitz has been spending the last little while in Greece, checking out the state of affairs. Those affairs, he predicts, will get worse and follow a course of events which keep repeating themselves:
As I read the details, I had a sense of déjà vu. As chief economist of the World Bank in the late 1990s, I saw firsthand in East Asia the devastating effects of the programs imposed on the countries that had turned to the I.M.F. for help. This resulted not just from austerity but also from so-called structural reforms, where too often the I.M.F. was duped into imposing demands that favored one special interest relative to others. There were hundreds of conditions, some little, some big, many irrelevant, some good, some outright wrong, and most missing the big changes that were really required.
Greece, he writes, is a sacrificical lamb on the altar of neo-liberalism:
Austerity is largely to blame for Greece’s current depression — a decline of gross domestic product of 25 percent since 2008, an unemployment rate of 25 percent and a youth unemployment rate twice that. But this new program ratchets the pressure up still further: a target of 3.5 percent primary budget surplus by 2018 (up from around 1 percent this year). Now, if the targets are not met, as they almost surely won’t be because of the design of the program itself, additional doses of austerity become automatic. It’s a built-in destabilizer. The high unemployment rate will drive down wages, but the troika does not seem satisfied by the pace of the lowering of Greeks’ standard of living. The third memorandum also demands the “modernization” of collective bargaining, which means weakening unions by replacing industry-level bargaining.
That's not to say that structural reforms aren't needed. But, as in the past, those in charge have got their economics wrong:
Structural reforms are needed, just as they were in Indonesia, but too many that are being demanded have little to do with attacking the real problems Greece faces. The rationale behind many of the key structural reforms has not been explained well, either to the Greek public or to economists trying to understand them. In the absence of such an explanation, there is a widespread belief here in Greece that special interests, in and out of the country, are using the troika to get what they could not have obtained by more democratic processes.
Special interests. Does that sound familiar? The results could well be catastrophic -- not just for Greece but for all of Europe. Those who refuse to learn from history are condemned to repeat it.
This entry is cross posted at The Moderate Voice.