by Jerome Roos (ROAR Mag) on July 1, 2015
3 July by Jerome
Roos
Image: sticking posters for the NO campaign ahead of
Sunday’s referendum.
If they had truly cared, the creditors could have
easily prevented a default. Sadly, they found it more important to punish
Greece and set an example.
On Tuesday, Greece became the first developed country
to default on the IMF — and the pro-creditor camp is already
propagating the convenient self-serving myth that the country’s “radical” and
“irresponsible” government is somehow to blame for this. Nothing could be
further from the truth.
To begin with, we should note that defaults come in
many forms and guises — and not all of them are the debtor’s fault. In my own
research on the political economy of sovereign debt, I identify at least four types of default: (1)
negotiated reschedulings; (2) voluntary restructurings; (3) unilateral
moratoriums; and (4) outright debt repudiations.
What is interesting about sovereign debt in general
(and about international lending in particular) is the almost wholesale absence
of repudiation. By and large, countries try extremely hard to repay their debts
in full and on time — even when they cannot. In the worst case scenarios, they
may be able to negotiate a rescheduling or restructuring of the debt with their
lenders. In exceptional cases, countries can declare a moratorium on
repayments. While this was very common prior to World War II, it is extremely rare
today.
In this respect, the first thing to note is that
Greece clearly did not repudiate its debts outright: despite the preliminary conclusions of the Greek parliamentary debt audit committee,
which found much of the country’s debt to be odious, illegitimate and illegal,
the Syriza/ANEL government still formally recognizes the legally binding
character of the debt contracts. Its IMF default therefore looks more like an
undeclared moratorium: Greece could still settle its arrears with the Fund at a
later stage if it somehow managed to secure new credit.
The second thing to note is that Greece clearly cannot
repay its debts in full: even the IMFrecognizes that it needs serious debt relief to make its
debts sustainable. Still, the country’s left-led government committed itself to
remaining current on its obligations even under the most difficult
circumstances imaginable. Over the past five months, Syriza basically did the
impossible: it continued to repay foreign creditors even though it didn’t
receive a dime in foreign financing.
So how did it find the money for these practically
unsustainable debt payments? Well, it generated them domestically from taxes
and budget cuts — along with a de facto default on government suppliers. Long
before Greece defaulted on the IMF, it defaulted on its own people and on the private sector firms that do business
with the government, just so it could keep servicing its external debts.
In fact, for all the talk of Greek “profligacy” and
Syriza’s free-spending ways, the left-led government would have run the largest
primary surpluses in the EU by far. In fact, Syriza’s budget would have been
the most austere on the continent:
Source: Economist (2015)
Now, the reason Greece has hit a wall and defaulted on
the IMF is very simple: despite running primary surpluses, it basically ran out
of cash reserves — and the fact that it ran out was clearly not its own fault.
For one, Greece’s repayment schedule for 2015 was
simply unrealistic; the summer especially is full of huge payments. Moreover,
the creditors showed absolutely no willingness to reschedule or restructure
Greece’s debt profile. The creditors’ stubborn refusal to make any concessions
in the negotiations also contributed to continued uncertainty, affecting growth
and tax collection. This combination of factors made an involuntary moratorium
on the IMF inevitable.
But it gets worse. If the creditors had truly cared about
preventing a Greek default, they could have done so at the flick of a switch.
The Eurogroup and IMF still owed Greece the last 7.2 billion euro tranche of
its previously agreed bailout package, while the ECB owed it nearly 2 billion euros in withheld
profits on Greek bonds, which it was supposed to return to the government. If
the lenders really didn’t want Greece to default, they could have simply
transferred this money from one part of the Troika to another — problem solved!
But it should be clear by now that the standoff
between Greece and its creditors is no longer about the money: it’s about power
and control. The creditors were adamant not to encourage Syriza’s resistance,
for this might embolden anti-austerity forces elsewhere — most notably in
Spain, where Podemos might well win the next elections. They wanted to set an
example.
The only possible way Greece could have obtained
further financing to repay the IMF this week would have been to sign up to the
self-defeating “take-it-or-leave-it” offer made by the creditors last Friday.
This would have been suicidal both for Syriza and for Greece. It was obvious
from the start that Tsipras would be unwilling and unable to submit to the same
austerity measures that had produced such disastrous economic consequences
under previous governments, and against which he had been campaigning so
aggressively for all those years.
And so the bottomline is that Greece was pushed over
the edge by its own creditors. Its left-led government is clearly still willing
to pay — just not at all costs, like previous governments. In fact, Syriza
rightly demands a fairer distribution in the burden sharing, a sustainable
long-term payment trajectory, and a sovereign say in the way it chooses to meet
its obligations — by taxing shipowners, bankers and media magnates, for
example, rather than cutting the wages and benefits of workers, pensioners and
the unemployed.
If this is considered “radical” and “irresponsible” in
Europe today, it’s only because the center has shifted light-years to the
right. Unfortunately, that is precisely what has happened. If anyone bears
responsibility for the Greek default on the IMF, it is the extremists in the
creditor camp who would rather suffocate their borrowers than ensure continued
repayment.
Jerome Roos is a PhD researcher in International
Political Economy at the European University Institute, and founding editor of
ROAR Magazine. Follow him on Twitter at @JeromeRoos.
Author
Jerome Roos
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