On Demands for Greek “Reform”

Michael Stephens | June 16, 2015

Senior Scholar James Galbraith on the “reforms” being demanded by creditors (vis. pensions, labor markets, privatization, and the VAT) in the negotiations over Greece’s fate:

On our way back from Berlin last Tuesday, Greek Finance Minister Yanis Varoufakis remarked to me that current usage of the word “reform” has its origins in the middle period of the Soviet Union, notably under Khrushchev, when modernizing academics sought to introduce elements of decentralization and market process into a sclerotic planning system. In those years when the American struggle was for rights and some young Europeans still dreamed of revolution, “reform” was not much used in the West. Today, in an odd twist of convergence, it has become the watchword of the ruling class.

The word, reform, has now become central to the tug of war between Greece and its creditors. New debt relief might be possible – but only if the Greeks agree to “reforms.” But what reforms and to what end? The press has generally tossed around the word, reform, in the Greek context, as if there were broad agreement on its meaning.

The specific reforms demanded by Greece’s creditors today are a peculiar blend. They aim to reduce the state; in this sense they are “market-oriented”. Yet they are the furthest thing from promoting decentralization and diversity. On the contrary they work to destroy local institutions and to impose a single policy model across Europe, with Greece not at the trailing edge but actually in the vanguard. …

Read it at Social Europe.

The Levy Institute’s latest strategic analysis for Greece lays out the ways in which the austerity and “reform” program has undermined the Greek economy, and thereby the country’s ability to manage its public debt.

The report (pdf) also examines how alternative financing arrangements — including a “parallel currency” — might be able to relieve some of the intense fiscal pressure being placed on the Greek government and allow it to invest in a direct job creation program (which would, incidentally, end up reducing Greece’s debt-to-GDP ratio. Reading the history of the Greek “bailout” through Galbraith’s interpretive lens makes one wonder whether that goal is really all that high on “reformers'” list of priorities …).


3 Responses to “On Demands for Greek “Reform””

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  1. Comment by George J. Georganas — June 17, 2015 at 1:35 am   Reply

    The article is based on a false premise : That Greece, given plenty of time, patience and money can reform. This is not right.
    Greece has historically been an extremely successful beggar state. In a 194-year history, is has defaulted, openly or covertly, nine times. Postwar Greece, posing as a Cold War battleground, was able to extract huge amounts of US military and civil aid year in, year out. After 1974, the begging bowl was passed to the EU. The present crisis is but an effort by the EU to limit the cost of supporting a pestering relative. The partners of Greece were forced, by the present crisis, to learn about the country. They know, for instance, that the so-called social spending in Greece increases inequality, rather than decreases it. They are right to conclude that any of their taxpayers’ money spent on Greece would be better spent in Sub-Saharan Africa or Bangladesh or, even, on their own welfare states, where it might actually improve social outcomes.
    It would be revealing for Professor Galbraith to visit one of the toilets in the Greek Finance Ministry, not the ones reserved for high-level guests, but one open to the hoi polloi, lowly officials and visitors. He will find out that all the toilets are without toilet paper. Having briefly worked there and in other Greek ministries I can report that the paper is actually stolen, in huge quantities, by the cleaning ladies, newly reinstated in their jobs and public-sector-worker status by his friend Mr Varoufakis. This is quite rational behaviour, since they cannot be legally fired, despite stealing.

    • Comment by Michael Stephens — June 18, 2015 at 10:45 am   Reply

      You seem to have missed another key premise of the article: that Greece has already “reformed” (in the sense indicated above), and to a significant extent.

      For instance, labor market “reforms” have reduced unit labor costs by around 20 percent since 2010 (p. 3).

      Since 2011, government spending on pensions alone has been cut by 21 percent.

      And although I’m afraid I don’t have any specific figures on toilet paper spending, the size of the public-sector workforce has been slashed dramatically.

      While your claim that bailout funds sent to Greece do little to improve the social conditions of the Greek people appears to be correct, it would seem to be so for a rather different reason than the one you imply: namely, that the bulk of the funds have simply been funneled to German and French banks (p. 7).

  2. Comment by George J. Georganas — June 18, 2015 at 5:08 pm   Reply

    If a premise ( = a previous statement or proposition from which another is inferred or follows as a conclusion) of the article was that “Greece has already reformed”, then what would be the point of the article ? It is, perhaps, the conclusion of the article that Greece has already reformed.
    Apart from this, perhaps revealing, lapse in logic terminology, why would one conclude that unit labor costs at the level of 2000 would by themselves be sufficient to unwind decades of malinvestment, especially of long-lived human capital, geared towards producing services, such as stamp-setting on official public-sector documents, licenses and permits of all sorts, for which there is no demand in the world market ?
    Why would spending on pensions not need to be cut when the average pensioner (2,7 million of them in a country of 11 million) receives close to 900 euros per month, while the starting minimum wage is less than 600 euros per month (both before income tax) ? Can this huge economic distortion be left unreformed ?
    And, if Andreas Papandreou was arguing back in 1987 (in the US magazine New Perspectives) that the public sector in Greece was already overstaffed by 100%, how can one claim that the recent reductions have been sufficient ? Even more so, now that Mr Varoufakis has chosen to reinstate some of those who had been fired.
    Moreover, it is a fact that not only bailout funds but most of Greek social spending increases inequality, rather than decreases it. The Greeks did spend their borrowed money on increasing inequality in their country. It was no business of the Greeks to dictate whether the Germans and the French would direct any new money to their banks or to charity in sub-Saharan Africa. Incidentally, Germany committed perhaps more than ten times the money it committed to the Greek bailout to the bailing out of German banks that lost money in the US subprime-initiated financial crisis.

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