The Troika keeps going

Despite continuous requests across Europe for an economic policy focused less on monetary parameters and more on growth, in the EU institutions requests for “structural reforms” – a code word that generally means austerity and liberalization – continue to prevail. This is evident in the case of Greece, as well as in some of the proposals made to deal with the banking troubles in Italy.

On December 5 the European Finance Minister approved some limited measures to help Greece, with the goal of reducing interest on its debt over time. However, the central issue of the negotiations, including in relation to new loans from the IMF, remains “fiscal discipline”, that is, the condition requiring the country to maintain a primary budget surplus of 3.5% for at least 10 years, to pay off the debt, rather than make investments.

It seems that there are different opinions on the extent of the austerity “necessary” though: while the EU considers 3.5% a reasonable figure, the IMF fears this level isn’t sustainable. In a position that defies logic, one of the possibilities advanced by the IMF – according to the Wall Street Journal – is that of implementing even more austerity in order to reach the goal more quickly.

In the meantime the result of the referendum in Italy has given the supporters of the structural reforms an excuse to request a shift in Italy as well. As reported by numerous Italian media, an advisor to the German government, Volker Wieland, has suggested that the next Italian government request assistance from the European Stability Mechanism (ESM), to draw up an aid program with the support of the IMF as well. This would make it possible – according to the Germany daily Handelsblatt – to “apply the proper pressure to get reforms moving.”

Wieland cites real problems for Italy, such as the inefficiency of public bureaucracy and the justice system, but recent experience demonstrates that the reforms requested by the Troika generally don’t provoke growth, but tend to cause further damage and reduce the population’s living standards.