A number of weeks ago, I pointed out that Greece would need between 60 and 100 billion euros in addition to the 110 billions of bailout money already borrowed from EU-IMF in order to remain solvent and avoid default. I have also pointed out that no matter what the country does with the EU and IMF, the numbers simply do not add up so that it can avoid default. On 19 June 2011, Prime Minister Papandreou announced that Greece is looking into a bailout package of about 110 billion euros.
On 17 June, the Socialist Prime Minister reshuffled the cabinet to reflect a more conservative administration that would be able to deal with the labor unions, appease banks and business, while trying to secure a bit easier loan terms from the IMF and EU. Illusions and egomania are never in short supply among politicians in general, and this is even more so among Greek politicians who believe that they possess THE ANSWER to the debt problem that has become a major economic, social, and political problem. The illusions would will only come to a pause, if the social protests evolve into a revolt that entails regime change. While revolt is not likely in the summer months, it may not be out of the question if the current regime continues to enforce IMF-EU austerity measures until it impoverishes a substantial percentage of the population.
Massive protests in Athens have not convinced the ruling party and the opposition that people oppose austerity measures, and that people want politicians, businesspeople, trade unionists, bureaucrats and all others who have been stealing public money for decades and/or not paying taxes to pay what they owe to the public treasury and to go to prison for their crimes.
EU and IMF pressures on Greece to pursue austerity and privatization are part of the conditionality for new loans. But what is the meaning of such measures other than greater impoverishment of the population, especially workers and middle classes? So far, the average person has lost 28% of income - through wage and benefit cuts, as well as higher taxes - which means that consumption is now curbed by as much as small businesses are closing to the benefit of foreign-owned multinational chains.
A prolonged loan program of an additional 110 billion euros would mean that Greece would have borrowed about 80% of its GDP in less than two years. It also means that in ten years from now, Greece would still have a public debt to GDP ratio of about 140%; an unsustainable rate. There have been leaks from inside the government that Greece has informally agreed on a default in a couple of years, but such rumors are intended to shake up the political establishment more than they reflect anything of substance.
Greeks have taken out of the country more than 600 billion euros, thus depriving the domestic market of preciously needed capital investment. De-capitalization is part of the cost of IMF-style austerity that make the economy dive faster into recession and spiral into a debt cycle. Private citizens do not have to repatriate money that they took out, although many of them have paid no taxes on the money and that constitutes tax evasion, which is one of the causes of the current public debt crisis.
Eurogroup president Jean-Paul Junker recently proposed that the EU consider focusing on development assistance for Greece, and not just on bailout assistance and austerity. One idea is that the EU fund programs without asking Greece's funding participation. If the IMF-EU program, which could amount to more than 220 billion euros, or $300 billion, was divided from the outset into 50% bailout and 50% development, Greece would not have the serious long-term structural financial, economic, social and political problems. In short, if the EU had opted for economic development instead of monetarist policies that undercut development, Greece would not have the EU over a barrel today, and the Greeks would not be facing 16% official unemployment - expected to rise to 20% by the end of the year - and 28% cut in income.
Why did the EU go the IMF monetarist route and not the development route? The goal was to strengthen large foreign creditors and domestic banks. But how well has monetarism served their interests so far? With the exception of those waiting in the wings to make a bundle of money if and when Greece defaults, who really benefits from the madness of monetarism's austerity? The problem with the EU and the public debt crisis from the beginning, not just in Greece, but Ireland and Portugal, was that the policy mix never focused on development.