In a chapter of their new book, The Body Economic, academics David Stuckler and Sanjay Basu calculate the toll austerity has taken on the health of ordinary Greeks. Their assessment is sobering: an HIV epidemic; medics unable to afford gloves, gowns and wipes, and spiralling suicides. Last week the IMF admitted it had been too sanguine about the devastation austerity would wreak on Greece – and that some of the measures forced on Athens in return for its emergency loans had been wrong. Put bluntly, the social crisis catalogued by Stuckler and Basu needn’t have been so devastating, and fewer Greeks need have died.
Looking at the first of the three austerity packages the IMF and Europe imposed on Greece, the report admits that the troika’s optimism over how the economy would react to austerity was disastrously wrong. It was forecast that Greece’s annual income, its GDP, would by last year be down only 5.5% from its 2009 level; the reality was a drop of more than three times that. Unemployment in 2012 was anticipated to be 15% of the workforce; it turned out to be 25%. Amid epochal crisis, Greeks wouldn’t have avoided economic and social dislocation – but the policies thrust on them heightened the suffering. The troika underestimated the impact that cuts and tax rises would have on the economy; it failed to foresee the consequent collapse in business confidence, and the further ruination of the loans extended by Greek banks.
Early on in the crisis, this paper argued for a rapid writedown or even default on the debt owed by the Greek state coupled with measures to insulate European banks from the shockwaves that would immediately follow. Instead, Greece was lent money to keep repaying the interest on its loans to banks and hedge funds, even while its people starved. Now the Fund concedes that early debt-restructuring would have been best – but says that it “had been ruled out by the euro area” by officials and politicians who were not up to the job of crisis management. As this weekend’s game of blame tennis between the European commission and the Fund illustrates, the troika is as dysfunctional in 2013 as it was in 2010. Meanwhile, Greece is sticking to the austerity course, for which its reward is the sixth straight year of recession.
It is time the troika learned some lessons from the Greek debacle. First, a clearer division of labour needs to be established between Europe and the Fund. Second, the IMF should publish evaluations of how the other euro debt crises were handled. Third, it is time the Fund devised a legitimate process for countries to declare bankruptcy. Finally, the euro group needs to reverse its austerity policy and encourage fiscal stimulus. The mess made of Greece must never be repeated.