Saskia Sassen: Three rarely –if ever– mentioned or repeated facts in the Greek tragedy

by Saskia Sassen – July 4, 2015


You, dear reader, decide if these three facts lead you to say yes or no to Austerity — not to Europe, but to Austerity.

I. On January 28, 2015, three days after Syriza’s victory, Mark Carney (head of England’s central bank) said  “the eurozone is caught in a debt trap and should ease hardline budget cuts.” Carney further made it clear that he thought the failure to complete the process of integration coupled with over-restrictive fiscal policies risked driving the 18-nation single currency area deeper into a debt trap”.

I simply want to point out what he said, and, secondly, that this was rarely repeated again, and not much reported in newspapers generally.

Also shortly after Syriza’ s that same day Lagarde, head of the IMF, said “We will work with Greece.” She never quite repeated this clear, short forcefull, affirmative statement, with no caveats attached — the will to help.

These positions were overrun and demolished by Germany’s Schäuble who in those same days delivered his much recorded “contracts are contracts, we do not cancel contracts…”.

II. In the late 1990s, the IMF recognized that its “restructuring programs” launched in the early 1980s aimed at development in poor countries had not worked out. They had amounted to the governments of 46 countries accumulating a bigger and bigger debt, paying more and more in interest payments. To pay interests (only interest, not even the principal of their debts!) these countries had to cut investment in development – health, roads, education, etc. They were paying far more in interest than for three critical development functions. In short they were becoming poorer and less developed. For instance, …

This impoverishment, that began in the 1980s with the restructuring programs was basically invisible to the bureaucrats in Washington and various European capitals. All they saw was that these countries were dutifully paying the interest on their debts –admittedly not as good as also paying some of the actual debt, but they were behaving properly, and hence the bureaucrats were satisfied. Mission accomplished.

But the IMF  and the World Bank recognized that 46 countries had accumulated debts they would never be able to pay, and development had not happened–only growing poverty and decay of  basic infrastructures and services. The IMF, with the World Bank created the Hyper-Indebted Poor Countries Program to help these countries focus on development by reducing their debt to reasonable levels.

Yes, Mr. Schauble, contracts can be broken when a policy shows itself to be deeply counter-productive.

III. Europe’s Austerity program is not unlike the IMF and World Bank’s 1980s Restructuring Programs for the Global South.

It is very clear that Austerity has not worked. More and more EU countries are stagnating. In the case of Greece, perhaps the most acute case, it has been disastrous. Greece’s GDP has shrunk by more than 20%, unemployment has grown, medical services have closed, once thriving small modest businesses have gone bankrupt, owners have committed suicide in numbers sharply above the normal.

The help that Brussels has offered if Tsipras accepts creditors’ demands? 7.2 billion Euros which  (as of today, July 1) wouldn’t even cover the Greek government’s debt repayments until the end of August, and offer a mere two months’ liquidity.

Nine of every 10 euros that Eurozone governments and the International Monetary Fund (IMF) have lent to the Greek government since 2010 have gone to the banks and other lenders –not to Greece to help recovery. And today the Troika asks for even more: All additional funding would go to pay back its debts of 175 percent of GDP.

But the troika asks for even more: enforcement of Austerity policies – the same policies that have shrink the Greek economy by over 20%.

It is not only scholars like myself who see it all like this. According to Martin Sandbu  of the The Financial Times (June 29 2015) further austerity isn’t even in the creditors’ interests […] it would demand even more cuts and depress the economy another 5% and raise the ratio of debt  GDP by another 9%, eventually depressing the economy by 12.5 percent, and increasing the ratio of debt to GDP by around 22.5 percentage points. It would not be a solution even for Mr. Schäuble’s perspective.

Conclusion? No Comment.

First published in Greek on “Enthemata” of the newspaper “Avgi”, 3.7.2015.

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