“… reality”, Lino Spiteri noted in his Talking Point of March 29, “has to be admitted and faced, otherwise one slides very quickly into a state of denial”. He was referring to the Greek crisis and the severe problems confronting Portugal and Spain’s public finances. While emphasising that the “size of Malta’s problems is nowhere near” theirs, he warned that “allowing for size, we do have problems which continue to cast a long shadow, especially over the next three years”.
As we observe the plight of Greece and other countries that, “among those in the eurozone (…) have run into a brick wall, but only more so”, it is difficult not to exclaim that “there, but for the grace of God, go we”. Only those among us who have blinkers irreversibly welded to the sides of their thick skulls will disagree with Mr Spiteri’s statement that the Greek and other cases “shout out a loud lesson that those who believe that, by adopting the euro, one has bought insurance against all odds, are very gravely mistaken”.
Dark fiscal skies
To confirm his view, as if it needed any further confirmation, he referred to the European Commission’s recent pronouncement on the state of our finances, especially its assessment of Malta’s financial plans for 2010-12. Contrasting this newspaper’s detailed account of the view from Brussels with the “rosy” version of it dished out by the Nationalist media, Mr Spiteri remarks that “gutting it for highlights demonstrates that the fiscal skies are still dark with no rainbow in them, let alone any pot of gold at its end”.
Translating Brussels speak into plainer language, Mr Spiteri tersely summarises what the Commission thinks of our public finances: “… we do not have a crisis but, without further expenditure retrenching and possibly higher taxation, we could move into one.” The Commission document itself makes interesting reading and I recommend you invest a quarter of an hour on it. Who knows, you might come up with a different interpretation of it. You can retrieve it from http://ec.europa.eu/economy_finance/sgp/pdf/20_scps/2009-10/03_commission/2010-03-24_mt_recommendation_for_co_en.pdf. Let’s go back to Greece.
It is of vital importance that we do not get cause and effect in the wrong order here. The cause of the Greek crisis is not the package of drastic measures (tax increases and expenditure reduction, including wage freezes and pension cuts) imposed by the European Union and the International Monetary Fund as a condition for their $143 billion bailout. Which is not to say that this – as IMF’s John Lipsky euphemistically put it – “strenuous programme of fiscal adjustment and structural reforms” will not hurt the Greeks very much. On the contrary. The legislation passed last Thursday by the Athens Parliament will slash take-home pay for 20 per cent of the country’s employees. Strenuous indeed. Moreover, it may well slow down the economy so much that it will make its revival even more difficult.
As The Washington Post’s Steven Pearlstein observed: “Greece now finds itself in a trap where the only way it can refinance its crushing debt load is to drastically cut spending and raise taxes but doing so will almost certainly plunge the economy into such a deep recession that incomes and tax revenues will fall and the government will be unable to meet its debt service requirements.” This possibility is even more galling when you consider that the markets themselves seem to consider the bailout fund (that is, what ordinary Greeks are being forced to pay for with cruel lowering of their standard of living) as being too little and too late. True, European leaders wasted precious time and allowed markets to lose further confidence in Greece and in other “peripheral” European economies. Would Angela Merkel and Nicolas Sarkozy have finally switched on their green light had it not been for the impact of a Greek default on German and French banks? True, the European Central Bank’s denial of the threat of contagion has not been of much help.
But none of these caused the Greek crisis for the simple reason that effect cannot precede cause. Again Mr Pearlstein: “There is little doubt that Greece’s debt crisis is of its own making, the result of corruption and tax avoidance and that seductive Mediterranean coupling of high living and low productivity.” I don’t know about the Mediterranean jab (clearly an instance of what Edward Said refers to as “orientalism”) and I am not sure about the generalisation regarding low productivity, but what about the rest?
It is relevant that when, last Thursday, George Papandreou begged ordinary Greeks to patiently bear the brunt of the sacrifice for a state of affairs they are not directly responsible for, the Greek Prime Minister promised to heed the Greek people’s call for a crackdown on corruption. Clearly, he is acutely conscious of the fact that corruption is one of those problems that continue to cast a long shadow over his remaining time in office.
This article appeared on Dr Vella’s regular column on The Times of Malta on May 10, 2010 and may be accessed at http://www.timesofmalta.com/articles/view/20100510/opinion/long-shadows-from-greece