Friday, January 6, 2012

IMF: The gaping abyss of "reform"

...Whenever the IMF tried to take care of countries’ debts, it created more problems than solutions
Former Brazilian President Lula Da Silva

About a month ago, on the 16th of December, IMF mission chief for Greece, Poul Thomsen, told reporters that the country's economy:
“ continuing to trend downwards, reflecting that the hoped for improvement in market sentiment and in the investment climate is not materializing,”
Having finally recognized, after two years of producing an unmitigated societal and economic disaster, the failure of its plans, its estimates and its projections, one would expect the IMF to backtrack from its pro-depression policies, and start proposing something less catastrophic for Greece and the rest of the EU periphery (and eventually the whole of the EU and the rest of the world). Well one wouldn't really, if they knew the history of the IMF and the recent history of the EU debt debacle, but that would be the rational thing to do. Actually the IMF did the exact opposite: after a treatment that has driven the patient close to death, it is asking to increase the dosage of the same deleterious medicine in line with the Merkozy school of Hooverian economics:
"The numbers show that Greece's budget deficit continued to rise in November, while the recession, spurred on by suffocating austerity measures, has cancelled out a large part of the extra income that the government hoped to gain from emergency taxes. Indeed, provisional figures from the Ministry of Finance show that the state budget's "black hole" broadened by 5.1% in the first 11 months of this year, reaching 20.52 billion euros, compared to a total of 19.5 billion a year ago.

In order drastically to reduce public spending, therefore, the so-called "troika" has asked the Athens government to carry out further severe austerity measures, including the redundancy of a further 150,000 public sector workers by 2015, in addition to the 30,000 who will be released by the end of this month. The demands of the "troika"... were announced by the Minister for Administrative Reform, Dimitris Reppas, following a meeting with representatives of the international creditors: Matthias Mors, Mark Flanagan and Bob Traa. Reppas explained to the officials that the redundancy of surplus state employees has not had the desired effect because the measure was applied hurriedly and without correct assessment..."
IMF eparch for Greece P.Thomsen
Along with all that, and a barrage of new taxes on the already buckling shoulders of employees and pensioners who cannot evade taxes, add the customarily sadistic and destructive extortions accompanying every installment of the "loan package" Greece has been receiving from the troika: demands for lowering or abolishing the minimum wage (it's ~8400 Euros/year net, theoretically, around 7000 Euros for youth entering the work force, and less than that for all the tens of thousands now forced into part-time jobs, usually with full-time schedules, and no overtime, and those who are months behind in salaries probably never to be received) and cancelling the 13th and 14th monthly salaries (misrepresented as bonuses when they are part of a workers' yearly compensation, cut into 14 installments for historical and practical reasons) - and that's for the private sector. Public sector workers having had their (mostly) meager salaries slashed by anything from 30 to 60% over the past two years, and having been fired at random for months now, are planned to be drastically reduced in number (they were no more than 14% of the workforce to begin with note, near the OECD average) while most teachers, and quite a few doctors etc will be among the working poor.
Note that there is still one area in which Greek public spending outperforms most of the healthier economies of the world: defence spending. This is apparently, actively encouraged by both Merkel and Sarkozy.

Is it a Greek thing?

The disaster that has befallen Greece, according to the various fiscal occupation authorities, is entirely of its own making, the reasons the IMF's predictions have failed is because of insufficient political support or not enough reforms. But is that  true? How successful have the policies of uber-hooverism been in less rowdy patients?

IrelandTroika warns of future welfare cuts
The Coalition will have difficulty in keeping to its promise not to adjust tax bands and credits in Government and will also need to rely on cuts in social protection to provide the “bulk of savings”, troika officials monitoring Ireland’s bailout programme have determined.
Two separate analyses by the EU Commission and the International Monetary Fund published before Christmas have disclosed details of proposed measures for the 2013 budget, which is unprecedented for Ireland. A total of €3.5 billion in savings are planned; €1.25 billion in new taxes and €2.25 billion in cuts.

The analysis has also criticised aspects of Government policy, including its decision to make larger than expected reductions in the capital budget as well as the lack of punitive sanctions for unemployed people who refuse to seek work.
...All of which lead to the obvious question: Ireland has done what the IMF wanted, but where is the reward?
Despite 'exceptional' efforts to meet IMF targets, Ireland has a rising deficit, sustained emigration and 15% unemployment... The fiscal adjustment, according to economist Karl Whelan, is the equivalent of "€4,600 per person… the largest budgetary adjustments seen in the advanced economic world in recent times". With annual "adjustments" of €3-4bn flagged until 2015, the euphemism of "purposeful austerity" cannot long camouflage the concerted assault on the – already minimalist – social contract...
...Costas Douzinas recently documented how the IMF blames the failure of its growth predictions, and austerity measures, on the impact of Greek public resistance. Yet in well-behaved not-Greece, the same bad medicine has resulted in a rising deficit, stagnant growth, sustained emigration, and unemployment at about 15%. In its latest quarterly report, the IMF praised Ireland's "exceptional" efforts to meet its targets, but this praise comes at a time when the fiction of a reward for good behaviour is falling apart.
Portugal: Income inequality EU15 champion, is heading towards even greater income disparity, as are apparently all the already highly unequal "restructured" peripheral countries - this being of course not a side effect but an aim of the IMF / ECB/ EU programmes. Meanwhile, this year's logistic trick that reined in the Portuguese deficit can't be repeated next year:
The government had set a goal to trim the deficit from 9.8 percent of GDP in 2010 to 5.9 percent in 2011 and to 4.5 percent next year. The 2012 budget includes a plan to eliminate the summer and Christmas salary payments for state workers earning more than 1,100 euros ($1,443) a month. Tax deductions will be reduced and the government plans to increase the value- added tax rate on some goods.
 Or as the IIF has put it:
Portugal, which has “experienced serious fiscal slippages,” is trying to meet a deficit target of 4.5% of GDP. Doing so would require a fiscal contraction valued at 6.1% of GDP, in a year in which growth is expected to drop by 3%. “This represents a very demanding objective and lack of progress could heighten market concern.”

Spain:  The new conservative government has already reneged on its promises as a result of troika pressure and missed targets:
Spain's new government said on Friday that this year's budget deficit would be much larger than expected and announced a slew of surprise tax hikes and wage freezes that could drag the country back to the centre of the euro zone debt crisis. In its first decrees since sweeping to victory in November, the centre-right government said the public deficit for 2011 would come in at 8 percent of gross domestic product, well above an official target of 6 percent. It announced initial public spending cuts of 8.9 billion euros ($11.5 billion) and tax hikes aimed at bringing in an additional 6 billion euros a year to tackle the shortfall.
And things look bleak for the foreseeable future:
Rajoy's government is taking quick action so as to meet a promise to slash the annual public deficit to 4.4 per cent of gross domestic product in 2012, come what may.
The government has acknowledged Spain will miss its goal of reducing the public deficit to 6.0 per cent of GDP in 2011 from 9.3 per cent the year before. The 2011 deficit may even top 8.0 per cent, ministers say.
The Popular Party government says the deficit slippage in 2011 could force it to implement another 20 billion euros in austerity measures for 2012, on top of the originally estimated savings target of 16.5 billion euros.
The government also announced that the social security fund's accounts are worse than had been feared, with a 2011 deficit of 668 million euros. The previous Socialist government had forecast a social security surplus
But it isn't just the unclean PIGS, who are in trouble, austerity (certainly the open-ended, turbo-austerity we're witnessing being implemented around the world) hasn't worked because it never worked in the interests of the societies subjected to it:
Indeed, austerity economics has not worked in one single case in Europe in the last two years. When David Cameron’s government imposed a first round of harsh spending cuts in 2010, it utterly failed to revive the British economy as promised. To the contrary, it probably cut a budding recovery short. Unemployment and the deficit as a percent of GDP remained high. Some pro-Conservative observers I met at the time assured me that the Cameron team, led by George Osborne, the Chancellor of the Exchequer, was pragmatic and would reverse course on austerity if it wasn’t working. Yet when growth basically ground to a halt in late 2011, the Cameron team only doubled down, making further cuts. We need more of the same medicine, they told their citizens, a record number of whom are unemployed. Britian is a hair’s breadth away from outright recession only two years after its last one.

So, no Mr. Thomsen, the IMF / ECB failure was not due to some Greek particularity. It is systemic and ubiquitous. part and parcel of what austerity is supposed to do. Indebted countries in the EU periphery can get an idea about where they will be next year socially, if these policies are not resisted, by looking at Greece now . We're a year ahead as far as social despair is concerned (possibly a couple more years from richer countries). And by just sitting there and doing nothing, dear European reader, you're not helping avert it. Protest, organize, demand. Elect those who are explicitly and adamantly against the destruction of social Europe. Or, as our brothers from across the pond might put it, fight the 1%...
[An extended and slightly rearranged version of this post is cross-posted at the European Tribune]