Austerity Has Brought a Humanitarian Crisis to Greece

19/05/2015 20:47 | Updated 19 May 2016

Old man leaving a "one Euro shop" in Athens. Copyright: spaceshoe via Flickr

"We risk condemning an entire generation to a future without hope. To avoid that, what we ask from our eurozone partners is to treat Greece as an equal and help us escape from this Sisyphean trap" hopelessly wailed the pages of the Financial Times in an op-ed titled "Give Greece a chance" co-signed by Greece's deputy prime minister, the Minister for International Economic Affairs and the controversial Yanis Varoufakis, the Greek finance minister.

The three officials paint a dismal, heart-wrenching picture that eclipses even the 1930s Great Depression: Greece has lost 26% of its GDP, unemployment has grown three-fold to 26%, while wages have plummeted by 33%. Sixty percent of young people are unemployed and have seen their dreams quashed as wave after wave of painful austerity measures battered Greece. Make no mistake - the country's staggering decline is unparalleled in peacetime. And even if some could draw parallels with Ukraine's own economic travails, pointing fingers at similarly inefficient central governments, rampant graft, entrenched corruption and tax evasion, one crucial aspect is neglected: Greece is not the victim of geopolitics but of an overdose on the poison pill of austerity.

As creditors were haggling over the next tax hike or benefit cut with the populist government of Alexis Tspiras in sumptuous rooms and news media outlets were inking away yet another glum forecast for the country's chances of reaching a deal, Greek suicides rates climbed by 35%, reaching record highs. In the past five years, pensions have been cut eight times, monthly stipends decreasing by some 45%. Forty percent of retired Greeks receive pensions below the EU's poverty threshold, a twofold increase since 2009.

Tspiras has repeatedly stated that his country is going through a "humanitarian crisis", a call that prompted Brussels to disburse a €2billion emergency aid package to be spent on "social cohesion". The figure is no more than a drop in the ocean. Indeed, everybody touts the headline grabbing €360billion Athens owes to international creditors, a figure so tall that it defies imagination and fails to encompass the unparalleled human cost that relentless austerity has had on Greeks.

The debt spiral the country is locked in simply cannot continue. Even if Athens secures a new bailout to pay the €10billion in redemptions to bondholders before the end of August, merely servicing debts will not restart growth or create jobs. Unfortunately, a perverse form of groupthink traps the Troika into believing that more austerity and more structural reforms to cap public spending will be enough. In fact, what Greece needs is to be given enough breathing room to grow its way out of debt. The only question is how?

Over at Bloomberg, Leonid Bershidsky suggested that Apple and a few other U.S. tech companies should use their $439 billion cash pile to buy almost $200billion worth of Greek debt. As the reasoning goes, these multinationals hoard their money abroad, weary of paying U.S. taxes or investing. In exchange for half their cash, Athens should reward them with a pro-business, low tax environment in which these companies would move their European operations. However, such a plan would merely transform Greece into a tech banana republic, a refuge for greedy companies always eager to cheat on their taxes and hoard even more coin at the behest of workers. It would tip the scales against those who need a decent salary most.

No, Greece needs to prosper anew in the Eurozone. But for that to happen, foreign investment must flow towards its key industries. Financiers all the way from China to Abu Dhabi are lining up to pour cash in precisely those sectors that could employ the throngs of jobless Greeks. The far left Syriza government, however, constrained by its inept populist rhetoric, has been sending mixed signals about its willingness to allow foreign investment and has chosen to write bleeding heart op-eds in leading journals instead of opening up the Greek economy. Reuters photographer Yannis Behrakis recently made a 2,500 km trip across the country, documenting the shabby state of Greece's once flourishing manufacturing industry, "which has suffered a 30% drop in production from its peak". The photo essay shows apocalyptic scenes of desolation, as he waded his way from abandoned factory to abandoned factory.

Europe could help with that. A brilliant essay written by Marie Christine Duggan argued recently that "creditors could promise to spend the money they receive from Greece (in the form of debt service payments) on Greek imports or on long-term investments in Greece". The idea, borrowed from the shining light of left economic thought, John Maynard Keynes, would be a win-win situation: the Troika would receive its money back and Greece would recover in the process. What's more, Syriza has long argued that capitalism and growth cannot exist without a healthy, educated working class - precisely what this plan would bring to the table.

Take shipping for example, an ancient and proud Greek industry that has been unfairly neglected by successive governments. Instead of pressing Athens to cut pensions, the German government could place an order for, say, military frigates or cruise liners. In one fell swoop, the money would flow into the Greek economy, create jobs and know how, which will then enable Athens to repay its debts to Berlin. Manufacturing and growth would take off and the humanitarian crisis would gradually subside.

What this example shows is that flexibility and out-of-the-box thinking are the two elements that are sorely missing from the current debate. Even liberal stalwarts like the Financial Times have called on creditors for a change of tact and for admitting that Greece cannot pay back its debts. When will the Troika realize the damage their stubbornness is causing the Greek people?