Last month, seemingly acknowledging the growing body of evidence showing that austerity has done little but wreak havoc in Europe, the International Monetary Fund admitted that it underestimated the deleterious effect spending cuts would have on the Greek economy. In a post-mortem report, the IMF said that the proper "multiplier" for pulling a public dollar out of the Greek economy should have been twice what the fund initially estimated.
But is the IMF actually applying any of the lessons it supposedly learned? The answer appears to be no, as yesterday the fund approved the latest round of money to keep the Greek economy afloat, but in return demanded that Greece follow through with thousands of public sector layoffs.
Not that every government job should be forever sacrosanct, but what is the wisdom in adding thousands more unemployed workers to a country that is already experiencing unemployment higher than 26 percent? More than 50 percent of young Greeks can't find work; thousands more workers joining them on the unemployment line is not going to make that better.
IMF Managing Director Christine Lagarde – who has actually said a lot of good things recently about the perils of cutting government spending whilst economies are weak, including pillorying the United States for continuing its across-the-board "sequester" spending cuts – even bragged about the fact that Greece may reach a primary budget surplus by the end of the year. But again, what is the point of a budget surplus when more than one-quarter of the workforce is jobless?
The horror stories that have come out of Greece's previous rounds of budget slashing reveal the human cost of the IMF's insistence on gain through pain. Patients were asked to bring their own medical supplies to hospitals that couldn't afford them. H.I.V. infections doubled as needle exchange programs were cut. As David Stuckler and Sanjay Basu wrote in the New York Times, "After mosquito-spraying programs were slashed in southern Greece, malaria cases were reported in significant numbers for the first time since the early 1970s."
Europe has been trying and trying to prove that austerity leads to a growing economy, but it just hasn't happened. The Athens-based think tank IOBE estimated yesterday that the Greek economy will shrink by another 5 percent this year, a deeper drop than previous estimates, and that unemployment will climb to 27.8 percent. "As long as the recession persists, the economy isn't only burning fat but also productive tissue," said IOBE head Nikos Vettas.
Greek public workers are once again in the streets, protesting the latest round of cuts. Meanwhile, the IMF today released its summer economic growth update, revising down its previous estimates for both the world and Europe. Perhaps that would change if the IMF itself didn't keep insisting that countries destroy themselves.