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Thursday, July 07, 2022

A Greek tragedy every which way

Then, Plato and Aristotle, and now Mr Tsipras. How did Greece fall so low?

Written by P Chidambaram |
July 12, 2015 12:00:00 am
Greece, Greece crisis, Greek euro crisis, Greece bailout, Greek Bailout, Greece bailout talks, Greek referendum, Greece eurozone exit,  Greece euro crisis, Greece debt negotiations, Alexis Tsipras, Greece debt crisis, greece bailout crisis, indian express column, ie column Greece has fallen on evil days because it did something which millions of individuals — and some countries — do: it borrowed more than its capacity to repay.

Greece is not a rogue state. It does not harbour terrorist groups. It has no territorial ambitions. Greece is a lovely country that boasts of one of the oldest civilisations of the world and is proud of its contributions to mathematics, philosophy and statecraft. Greece’s connection with India began with a young warrior-king, Alexander. When the reigning king visited India in the early 1960s, President Radhakrishnan is reported to have greeted him with the words, “Your Majesty is the first King of Greece to visit India — invited!”

Greece has fallen on evil days because it did something which millions of individuals — and some countries — do: it borrowed more than its capacity to repay. Year after year it ran a high fiscal and a high current account deficit and financed them by borrowing more. Its debt to GDP ratio stands at 150 per cent.

Source of all Trouble

Now, I hope, readers will understand why I have argued consistently for containing the twin deficits. They are the source of all trouble. Practically everything can be traced to the level of the deficits: inflation, interest rate, exchange rate, foreign investment, the domestic savings rate and the sovereign’s credit rating.

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The Greek crisis is essentially about poor macro-economic management. There was a time when capital poured into Greece, but that changed with the global crisis of 2008. The crisis had a particularly severe impact on four European countries — Portugal, Iceland, Greece and Spain. It had its reverberations elsewhere too, not excluding India, but even if I say it, the fact is that India managed the crisis very well (read a cover story by P. Vaidyanathan Iyer titled ‘How they saved the India story’ in Eye, Sunday magazine of The Indian Express, dated 26 September 2010).

Undoubtedly, the borrower must take a large share of the blame. The creditors too must take their share. Both exhibited poor judgement. Mr Tsipras expects to be treated honourably because he is the democratically elected leader of a sovereign country. But most lenders are also sovereigns or sovereign-backed Central Banks. Both sides are playing hard ball. I hope they will eventually agree on a plan that will include a bailout by the lenders and hard and deep reforms by the borrower.

The lenders are stressing on one word: austerity. Austerity is a fine principle, but how much austerity can you impose on a country whose economy has shrunk nearly 30 per cent in the last five years, where 25 per cent of the people are unemployed, and where youth unemployment stands at 50 per cent?

I too have pleaded for austerity. I called it fiscal discipline. When I found that government expenditure had overshot prudent limits for three successive years — and the Government was applauded for maintaining a high growth rate thanks to the high expenditure — I persuaded the UPA government to change course. We appointed the Kelkar Committee, got a new fiscal consolidation path, and stuck to it through 2012-13 and 2013-14 in the face of virulent criticism. On 28 February 2013, I said in the Budget speech, “We must redeem our promise by 2016-17 and bring down the fiscal deficit to 3 per cent, the revenue deficit to 1.5 per cent and the effective revenue deficit to zero.”

Austerity vs Deprivation

It is here that we have an ethical and moral dilemma.

We may have lifted 140 million people out of poverty during 2004-2014, but millions of Indians are still poor. The Socio Economic and Caste Census (SECC) has brought out, starkly, the level of deprivation among the people.

The picture of rural India is grim. 62 per cent of the 17.91 crore households are deprived. 13.34 crore households (74.5 per cent) have a monthly income of Rs 5,000 or less. 6.86 crore households (38.27 per cent) earn their livelihood through manual casual labour. 2.37 crore households (13.3 per cent) live in one-room kuchcha dwellings.

Data for the 6.47 crore households in urban India has not been released.

Three-fold Problems

In the name of austerity, how long can the State deny funds to tackle the problems of deprivation? How long can the State ask people to wait to have a private toilet or access a good school or find a hospital bed? How long will people wait for clean drinking tap water or an all-weather village road or a decent, secure job? The answer is, not for long, because the anger will boil over. Our problems are three-fold:

1. lack of adequate funds;

2.  lack of a civil service that can deliver outcomes;

3.  unwillingness of the better-off classes to shoulder a part of the burden of the Government.

Austerity has a connection to the first problem. But even when adequate funds are provided, there is the second problem, that the outcomes are dismal: look at the outcomes of the Clean Ganga project or the RRR project for water bodies or the Accelerated Irrigation Benefit Programme. There have been honourable exceptions — abolition of polio and delivery of education loans. The third problem is the self-absorbed affluent classes which let the country down by refusing to pay their taxes or fulfill the social obligations they have undertaken (e.g. promise to build school toilets).

Austerity for macro-economic stability must be balanced with targeted expenditure to get rid of deprivation. Not often do Governments succeed in striking the right balance.



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