CANTILLON: We are all anti-austerityniks now it seems. The latest euro crisis player to undergo a Pauline conversion is the Institution of International Finance, the banking lobby group which negotiated on behalf of the big global banks in the Greek debt restructuring.
A recent paper by Jeffrey Anderson, its senior director of European affairs, comparing the Greek and Irish bailouts concludes that the main difference is not that Ireland could export while Greece could not, but the pace of the fiscal adjustment demanded of Greece compared to Ireland.
“Measured as the reduction in the primary fiscal deficit, net of cyclical effects and one-offs such as bank recapitalisation, debt assumption and contributions to the European Stability Mechanism, this averaged 5.2 per cent of gross domestic product a year during 2010-2012. The comparable figure for Ireland, 1.7 per cent of GDP, was less than one-third as much,” Anderson concludes.
When you add this together with a much larger fiscal multiplier – the negative feedback on growth of cutting government spending – in Greece, you start to get the picture.
Sorting out Greece is going to take more than further reform and spending cuts they argue. It will also have to include the “readjustment of Greece’s programme fiscal targets to incorporate the lessons of Ireland’s useful example.
“Using the fiscal space gained from spreading out the remaining adjustment needed over a longer period of time should do much to stem the downward course of economic activity and renew growth,” they argue. Stretching out the time-table will require additional financing, possibly through lower interest rates on bailout funds Anderson proposes – one suspects a little hopefully.
Few would argue with his analysis up until this point, but one suspects that any further concessions for Greece are going involve a further bailing-in of private sector creditors that the IIF represent and who have already taken a bath. Turkeys voting for Christmas or banks just facing up to the inevitable? Take your pick.
