John Humphrys is wrong about Greece

Tweet

A fresh arrival in austerity-stricken Athens over the weekend, as John Humphrys joins the ranks of IMF inspectors and faceless ECB technocrats currently descending on Greece. He’s in town to present Radio 4’s flagship Today programme, where the “glorious weather” stands in stark contrast to grey November London. Lucky Mr Humphrys.

Unlucky Greece. In a series of interviews, Greeks are told they were “foolish”. Their pensions are “staggeringly generous”. Greece “spent too much for too long”.

This is drivel. Humphrys repeats almost every Greek myth in the Bild handbook. The facts speak for themselves. Greeks are neither profligate, nor lazy.

1. Greece spends less on its public sector, as a share of GDP, than the EU average.
2. Greeks work amongst the longest hours in Europe, and retire later, on average, than Germans.
3. Greek public pensions account for roughly 11 per cent of GDP, around the same as Germany and France.

This is not a Greek crisis. It’s a European crisis, imposed on Greece. At its heart is the paradoxical weakness of the major European economies. Productivity growth in Germany, powerhouse of the European economy, has been sluggish for a decade or more. Greece, like other southern European countries, has seen productivity improve rapidly over the same period.

But the German economy is a vast exporter, both across Europe and into the rest of the world. To maintain this position in the face of sharpening competition, two things happened. First, real incomes in Germany were hammered, with social benefits removed and wages stagnating. Second, the creation of the euro fixed relative exchange rates across member countries. Germany entered at a low rate. Greece, like Portugal and Spain, entered at a high rate. German exports became cheap for southern Europe. Germany and other northern European economies began exporting more and more into southern Europe, creating huge surpluses.

You cannot have a surplus in one country without there being a deficit elsewhere. The two, by definition, balance. So surpluses in northern Europe were matched by deficits in the south. Blaming the debt crisis on Greek deficits makes no more sense than blaming it on German surpluses.

European financial institutions, notably those in France and Germany, recycled surpluses earned in the north as cheap credit for the south, who could, in turn carry on purchasing northern exports. Indebtedness, public and private, rose steadily. This flow of debt southwards kept the system running – right up until the financial crisis of 2007-8.

That crisis burst the whole set up wide open. Debts and deficits everywhere shot upwards as governments struggled to cope with a severe recession and collapsing financial systems. Inside the Eurozone, banks loaned huge sums to national governments – apparently in the belief that they could not default.

Default has now become an inevitability for Greece. Its national debt is unpayable. And as the economy shrinks, the relative burden of debt grows, dragging the economy further down. The EU deal, struck on 27 October, recognises this much in proposing a 50 per cent “voluntary” write-off for Greek debt – in exchange for worsening austerity. If approved, however, this reduction is unlikely to be enough to halt the death-spiral of debt and recession. The EU/IMF/ECB Troika, in a confidential report leaked ahead of the deal, suggest “at least” a 60 per cent default would be necessary. The true figure may be far higher; but a sharper default threatens banks across Europe, and will not be countenanced by its officials.

The hardships now being visited on ordinary Greeks are not punishments for past sins, despite Humphrys’ moralising. They are carrying the burden of a European economic system that is fatally flawed. It remains to be seen how long they will tolerate being made its scapegoats.