by Heather Stewart at The Guardian
On Channel 4’s The Three Day Nanny, modern-day Mary Poppins Kathryn Mewes arrives in a household of tantrum-prone tots and has just 72 hours to transform them with tough love and discipline into model family members. Judging by Greece’s latest bailout deal, its lenders, led by the German government, are adopting much the same approach.
It was already clear in the wake of eurozone leaders’ marathon all-night talks last month that the governing leftist party Syriza was being punished for its temerity in challenging the eurozone orthodoxy of austerity.
But when the 29-page memorandum of understanding prime minister Alexis Tsipras signed with his creditors emerged on Wednesday, the full scale of the discipline to which Greece has been forced to submit became clear. It’s a full-blown, three-year, big bang modernisation with a hefty price tag attached – not just in austerity measures, but in surrendered sovereignty.
The memo sets out not just the budget savings Tsipras and his ministers will have to try to deliver over the next three years, but a litany of specific policies they have pledged to implement under the general headings of modernising the economy and the state.
Athens will have to review its entire welfare system, for example, and throw open a series of restricted professions, including bailiff (surely a fruitful occupation in today’s Greece). It will have to liberalise the tourism rental market, review labour-market practices, scrutinise all the members of major bank boards to make sure they’re fully independent, accelerate the procurement of VAT collection software… the list goes on and on.
Once it gets down to the nitty-gritty, the abrogation of political control signalled by the memorandum is extraordinary
Many measures are not objectionable in themselves: they are couched in the language of “best practice” and will be carried out with the “technical assistance” of external institutions, including the Organisation of Economic Co-operation and Development and the World Bank. Not even the most radical Syriza hardliner would argue that Greece’s economy is not in need of reform.
And there are narrative passages, whose inclusion was presumably insisted on by the Greeks, that represent the tattered remnants of eurozone solidarity: “The correction of extreme imbalances in public finances in recent years has required an unprecedented adjustment and sacrifices from Greece and its citizens,” the document acknowledges.
But once it gets down to the nitty-gritty, the abrogation of political control signalled by the memorandum is extraordinary. It is littered with milestones and targets the Athens government must meet – month by month, year by year – and pledges to subject any significant policy changes to the scrutiny of its international overseers.
At one level, this is understandable: Greece’s creditors are putting their own taxpayers’ money at risk and have democratic mandates of their own to fulfil. But it sits in sharp opposition to the widespread public rejection of austerity revealed in June’s Greek referendum – and it won’t work.
The shortcomings of the fiscal arithmetic underlying the new plans have been well-rehearsed. Syriza has won modest concessions on the size of the primary surpluses (that is, surpluses before debt repayments) it will have to aim at in the years ahead. But the EU’s own institutions joined the International Monetary Fund in suggesting the country’s debt still looks unsustainable without restructuring – something that is yet to be negotiated. More talks will follow in the autumn, once the Greeks have passed yet more legislation to show their determination (and perhaps after snap elections).
All this will take place against the background of a eurozone economy that already appears to have been slowing, amid weak global demand, even before the fresh dose of deflation that will be heading Europe’s way after China devalued its currency last week. That will make it even harder for Greece to generate the growth it needs to rebuild public finances.
While Athens strains to reach its targets, it will be simultaneously attempting to concertina decades of social and political evolution – from stodgy backwater to new-model economy, graft-ridden client state to efficient technocracy – into just three years.
Drastic economic reforms imposed by external taskmasters hardly have a glowing history, even when enthusiastically adopted (think of the World Bank’s “shock therapy” in Russia or the IMF’s record during the Asian financial crisis of the late 1990s). The parliament may have passed the package on Friday morning after one of its soul-searching all-nighters, but with the economy still being strangled by capital controls, this was democracy at economic gunpoint.
And Greek citizens are being expected to absorb this dizzying level of social and economic change at a time when output has suffered a collapse on the scale of the Great Depression.
As Aravind Subramanian, adviser to the Indian government, argued powerfully in an essay last week, even if these structural reforms are much-needed, “without devaluation and the prospect of debt relief, reform merely spells more short-term pain, not less”.
He says the IMF could have atoned for its part in the “creditor-driven, austerity-addled misery” imposed on Greece over the past five years by insisting the country be offered the option of “assisted Grexit” – leaving the eurozone with financial support. Instead, it is condemned to at least another three years of economic turmoil and nitpicking oversight.
It’s the reductio ad absurdum of a project that was meant to bring the best of Europe’s economic model to its poorest members. The Greeks will now have modernisation shoved down their throats. And unlike the Three Day Nanny’s ministrations, this medicine is highly unlikely to work.