The IMF's Admission That Austerity Has Failed Is Going to Make the G8 Pretty Awkward
David Cameron at the G8 in Canada. Image via
Today, David Cameron will chair the G8 in Northern Ireland. While he's there, he'll be dodging awkward questions about why Britain spied on many of its guests at the G20 summits back in 2009. He'll also be trying to promote the virtues of austerity—a couple of weeks after the culprits behind the biggest experiment in austerity's history admitted that it was built on a false premise and utterly failed in its ambitions.
In a pretty frank report released last week, the International Monetary Fund (IMF) admitted that they were wrong about the Greek bailout. Which, clearly, is a big deal. It means that the austerity measures forced on the Greek people—measures that continue to cause a great deal of human suffering—didn’t need to happen. Worse still, the IMF admits what was patently clear at the time: the bailout wasn’t done for the sake of the Greek people, it was done for the good of the rest of Europe. In effect, the EU fattened Greece up by giving it access to cheap credit and booming demand in the early 00s. When it realized the herd was in danger, it slowly bled the sacrifical lamb dry.
The report admits that Greece didn’t qualify for a bailout. However, the criteria in question was quietly altered so that the loan could go through anyway if there was a “high risk of international spillover.” The European Commission mirrored this attitude in its rebuttal of the paper, saying the kind of debt restructuring that was really needed to solve the country’s problems couldn’t happen because of the risk of "systemic contagion." Which are all elaborate ways to say that Greece was fucked over for the wider economic health of Europe.
Here a few of the things the IMF's report highlights as “notable failures”: “Market confidence was not restored, the banking system lost 30 percent of its deposits and the economy encountered a much-deeper-than-expected recession with exceptionally high unemployment.” In short, it failed to achieve almost every one of its aims.
I’ve waded through the 51 pages of economic forecasts, trying to understand bewildering acronyms like "ULC REER." It’s hard to reconcile the findings with any kind of real-world suffering. It covers the unemployment rate—which reached 25 percent in 2012, compared to the IMF’s projection of 15 percent—but, in essence, it remains nothing more than a dry economic exercise.
IMF chief Christine Lagarde. Image via
Recently, Dr. David Stuckler, a sociology lecturer and author of The Body Economic—a ten-year study of the health impacts of recessions—told me, “Recessions can hurt, but austerity kills.” To meet the targets set by the IMF and its partners in the Troika, Greece, had to slash its health-care budget by over 40 percent and the country is in the midst of a public-health-care disaster.
HIV infections have more than doubled because drug prevention and needle-exchange programs were shut down. Reduced funding to mosquito-spraying programs have caused malaria to return for the first time since the early 70s. And between 2010 and 2011, the number of people committing suicide increased by 40 percent, with the health minister pointing the finger firmly at the crisis. And these are just a few of the examples Stuckler gives.
What the IMF admits in the report is that it dramatically underestimated the impact of government cutbacks on GDP. Miscalculating this ratio (a fiscal multiplier) means that austerity’s impacts on the country’s economy, and therefore the amount the government earns through tax, far exceeded their expectation. With government revenue way down, it couldn’t work on reducing its deficit, which was the aim in the austerity measures in the first place.
This is why it’s sickening that Cameron maintains his austerity dogma as we hear time and time again about its failures. Olivier Blanchard, the IMF's chief economist, even told Chancellor George Osborne he should rethink his economic plans in light of the continuing weakness of the UK economy: "There is a point at which you actually have to sit down and say maybe our assumptions were not right and maybe we have to slow down," he said, earlier this year.
There’s no beating around the bush. The report points to a cataclysmic failure in policy, and the Greek people will continue to suffer for it. And these are just two examples in a litany of failures—the intellectual foundations of austerity have been shot to pieces.
What’s perhaps the most frustrating issue to arise from all of this is that, despite their admissions, the IMF will go into the next rescue package with the same attitude, just like they have in the past. And Cameron, in the face of the same admissions from one of the world's most prominent monetary organisations, will remain one of the most ardent supporters of austerity at this week's G8 meeting.
Follow Chris on Twitter: @MediaSpank
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