Democrat September-October 2012 (Number 131)
eurocrisis reports and news
IMF policy based on false theory
The IMF's World Economic Outlook, published on 8 October, contained a serious revision of the way its experts calculate the so-called "fiscal multipliers".
Like the treasury in Whitehall, the IMF had assumed that each one euro of cuts and tax rises takes 50 cents off GDP growth. Now, because of the paralysed banking system and the co-ordinated nature of austerity which prevents countries from recovering through exports, the Fund estimates the impact is between 0.9% and 1.7%. That is twice to three times as high and is a massive revision. This explains why the Fund has been unable to predict correctly the outcome of austerity measures including the capacity for developed economies to take a double dip.
Why common sense was not used is a mystery. Of course the real purpose of the blanket austerity policies put in place across the EU, including Britain, are conveniently put out of sight.
As has been said in these columns the banking and financial crisis is being used as a carte blanche reason for cutting public sector spending and handing everything to the private sector.
The test bed for the Fund's new economics has to be Greece, where the government was given until 18 October to pass a new round of austerity measures. If it does not, the threat hangs over Greece that it won't receive 31bn euros in bailout money and will go bust by the end of November.
Following the revelation IMF chief, Christine Lagarde, called for more time to be allowed for austerity measures to be implemented. However there was no let up by the ECB and European Commission pressed by Germany.
The IMF has predicted the Spanish economy will contract this and next year by 1.3% compared to a government forecast of 0.5%.
Where does all the money go?
"Where are the 130 billion euros of aid to Greece going?" The response by the German quarterly Die Gazette is unequivocal: financial institutions outside of Greece will get 40 percent of the rescue package, Greek banks 23 percent, and the European Central Bank 18 percent. The remaining 19 percent earmarked for financing needs in Greece itself.
In other words, more than 80 percent of the rescue package is going to creditors – that is to say, to banks outside of Greece and to the ECB. The billions of taxpayer euros are not saving Greece. As the Democrat has reported before - they're saving the banks.
For the German quarterly, the ambition to reduce the country's debt from 160 percent to 120 percent of GDP by 2020 is an "illusion". An IMF economist has made clear that austerity doesn't work (see piece above).
The outcome so far means Greece is dominated financially and economically within the supranational eurozone. However, as recent demonstrations and strikes have clearly shown the Greek people are not broken socially where huge demonstrations and strikes continue despite the ugly provocation by police and fascist gangs.
Who's taking Greece's assets?
Amid mass protests, the German Chancellor visited Athens to promote new opportunities for German companies. "Privatisation of state enterprises and infrastructure must be accelerated", was the demand in Berlin even during the time preceding Merkel's visit.
The Chancellor remembers all too well how the German Democratic Republic's enterprises were liquidated, and therefore knows how to pluck out a country's industrial fillets to sell them off to profit-seeking investors. This has been part of the austerity policies, including privatisation, dictated by the ECB, IMF and Commission.
Interested Germans such as those in the Chancellor's delegation were in a privileged position, through the creation of "special economic zones" in Greece, which has been Berlin's long time demand.
A spokesperson for the German government recently commented on the effects of the German austerity dictate, which has led to the impoverishment of the population, saying "we have succeeded in reducing the unit labour costs by double-digit percentage points".
Foreign policy experts in the German capital attribute the mass protests during the delegations visit to misunderstandings and recommended that Berlin undertake targeted PR measures, to impede future resistance to German policies of domination. They allege that the Greek population is "badly informed, but has a right to comprehensible press releases" for more in depth explanations of the German austerity policy.