Francois Hollande is the latest to pronounce that the Eurozone debt crisis is over. Brave words while Europe continues to fall into economic disrepair (not least his own country). But no, the crisis, he insisted during a state visit to Japan, is a thing of the past; solidarity will bring stability, growth is now the way forward. And to prove he means business, he has vowed to end youth unemployment, and rescue a whole generation. He has even got together with German Chancellor Angela Merkel, no champion of growth policies, to prompt a new direction for the EU, one, preferably, with the European Commission having less of a say in things.
The commission is on the defensive after recent criticism by the International Monetary Fund (IMF) over its handling of the Greek economic meltdown. The back-and-forth continues. The IMF is self-flagellating, according to Economics Commissioner, Ollie Rehn, washing its hands of own failures, and then throwing the dirty water over European citizens for good measure.
There has been an error here somewhere, but, surely, it is the fault of the other guy.
The IMF admitted that it had been too casual about Greece, and that stringent conditions attached to the terms of the country’s bailouts were somewhat misplaced, leading to a social crisis that seriously undercut the confident predictions made by the troika (EU, IMF and European Central Bank (ECB)), which, along with underestimating the effect on social conditions of spending cuts and tax hikes, optimistically predicted a 5.5% decline in GDP on 2009 levels. This proved to be way off; as did predictions for the number of unemployed, currently standing at around 27%.
This ‘mea culpa’ (as it was dubbed by all and sundry) by the IMF that the estimates on recovery were far too optimistic was an obvious admission that the economic foundations of the bailout conditions were far from concrete. Moreover, it seemingly revealed that economics is far from an exact science; being less about formulae, calculations, graphs and the like, and more about abstract notions such as confidence. The troika placed confidence in Greece (as they would do in other failing Eurozone economies), in the hope that investors would follow suit; but the plan didn’t work. Economics, if the powers-that-be didn’t know it before, know now, is a human, not an exact science.
Greece is still in trouble. The political told-you-so’s are not going to change things; indeed the shutting down of the Greek national broadcaster, oddly welcomed by one German newspaper, is an ominous foreshadow of what might be; a public service closure that by definition curbs political discourse. Greek Prime Minister Antonis Samaras may have initially used the critical IMF report to embolden his political position, but the austerity course cannot be changed.
It is true that things need to change; a very definite division of responsibility needs to be determined between the commission and its partners for any future interventions. In addition, detailed and independent reports need to be drawn-up concerning other bailout countries, which should provide an insight into what, if any, problematic divisions exist between the different strands of the troika.
Hollande, who has ambitions to shape the economic direction of the Eurozone, may regret resorting to bradaggio about the single currency’s prospects if such analyses do indeed emerge.
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