Greek election and the IMF

Greece is still reeling from the recent interview of Christine Lagarde, head of the IMF, published in the Guardian on Friday.  In the interview, Lagarde is asked if she’s telling Greece that it’s “payback time,” to which she replies “that’s right.”  She now famously compares crisis-stricken Greece to villages in Niger where children only get two hours of school per day and share “one chair for the three of them.”  In her comparison, she says she has more sympathy for Niger because “I think they need even more help than the people in Athens.”

Fair enough.  It would be hard to argue that point – after all, who can forget the food crisis in Niger a few years ago which killed thousands, and again in 2010?  But Lagarde’s statement about Niger, “I have them in my mind all the time,” begs the question:  what does Lagarde’s organization, the International Monetary Fund, have to do with Niger anyway?

Although it can be hard to find good information about the food crises in Niger, the BBC reported (and it is generally agreed) that the main cause of the 2005 food crisis (I think we’re not supposed to use the loaded word “famine”) was not crop failure, locusts, or drought, but rather the high cost of food.  Niger is the poorest country in the world, so when neighboring Nigeria pays higher prices for food, Niger exports its food, reducing local food supply and driving up prices.  If it didn’t export food, Niger – even at the worst of the crisis – would have been able to feed its people without international aid.

But why would Nigeria pay higher prices for food?  Nigeria itself was also under the IMF and due to IMF imposed structural reforms, their food prices had skyrocketed.  Although this affected Niger the most, other countries, including Cameroon and the Ivory Coast exported more food than usual to Nigeria.

Niger, like Greece, had a corrupt public health care system which provided doctors, nurses, and hospital care for children and adults.  The IMF required Niger to change to a privatized health care system under the austerity measures program.  Now, according to the BBC:

It has a policy, encouraged by the Western world, of privatised health care so that it costs $14 (£8) for a mother to get a baby a medical consultation. That means almost no-one in the country can afford to see a nurse or a doctor.

It’s hard to think of a more effective way of reducing health care costs for the country – with international aid organizations picking up the tab for what health care there is, the government would no longer have direct health costs to pay for.  This is one of the policies that the IMF uses in Niger that it has been trying to get in place in Greece.  This week, one of the biggest news stories in Greece is the flow of Greek doctors – trained at Greek taxpayer expense at Greek universities where they didn’t pay tuition – to work in Germany, where there aren’t enough doctors.

Since the start of the crisis in Greece, the sales tax (VAT) has been increased several times, with goods such as milk and flour being taxed higher than ever before.  The price of electricity has gone up sharply, and I’m not even talking about the new taxes added to the electricity bill.

Johanne Sekkenes… believes that the IMF and EU pressed too hard to implement a structural adjustment programme. … Under the letter of intent signed between the IMF and the government, [they] agreed to extend VAT to milk, sugar and wheat flour, and reduce VAT exemptions on water and electricity consumption.

The quote above isn’t about Greece – it’s about Niger.  Niger – despite having reserves of uranium and gold – owed a lot of money, so they called in the IMF, which, in exchange for agreeing to lend them money, forced them to sign on to a raft of austerity measures.  Included in these was a measure against allowing the distribution of free food aid to starving people, in order to keep food prices high and not “flood the market” so to speak, which would cause food prices to come down.  The same logic was applied to sell off the government’s food reserves.  (At the time, the IMF claimed that these reports are overstated and/or misleading.)

The strongly anti-IMF WSWS says:

After he was elected to a second term last December [2004], President Mamadou Tandja imposed a 19 percent VAT on basic foodstuffs at the behest of the IMF. Part of the same economic package involved the abolition of emergency grain reserves. The tax was imposed despite the fact that the price of basic foods has risen between 75 and 89 percent over the last five years. At the same time, the sale price of livestock—the main income of the country’s nomadic herders—has fallen by 25 percent.

Traditionally, the IMF has pushed governments to privatize – i.e., to sell things owned by the people as a whole, and force the government to give the money from the sale to the IMF to pay down loans.  That’s because the IMF works in countries that are cash-strapped, and their austerity philosophy leads to the destitution of the people.  Once the people are destitute, there is not much tax revenue, so the best way for the government to pay back IMF loans is to sell off public services, land, and resources.  This month, Greek tax revenues are 30% below what they’re “supposed to be.”  While it’s easy for Lagarde to say

“Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax.”

Even more than she thinks about all those now struggling to survive without jobs or public services?

“I think of them equally. And I think they should also help themselves collectively.” How? “By all paying their tax. Yeah.”

it sounds as if she doesn’t see the connection between massive salary cuts, five years of recession, and high inflation on food on the one side, and lower tax revenue on the other side.  When 60% of the shops have gone out of business in a town, business tax revenue will go down.  When a person who used to have a job now is unemployed, income tax revenue will go down.  When 90% of a person’s income goes to pay rent, electricity, and heat, sales tax revenue on food and goods will go down.

(I also wonder if she knows that Greeks’ taxes are withheld from their salaries, just like everywhere else.  S and I filed our obscene 2011 taxes yesterday.  On the news they’ve said that anyone who is owed a tax refund will be unlikely to receive it.  Does she really want to talk about the Greek tax payer right now?)

When the IMF told the government of Malawi to sell part of its grain reserve in 2002, and then thousands of Malawians died of starvation, the IMF’s response was that the Malawi government didn’t give the IMF an accurate report of how much grain they really needed.

According to the Guardian, the same media outlet that interviewed Lagarde on Friday, Malawi spent 20% of its GDP in 2002 servicing its debt – “more than it will spend on health, education and agriculture combined.”

The new agreement that Greece signed with the IMF and the EU this spring guarantees that service on its debt is Greece’s first priority – before spending money on public health, education, defense, or anything else.  It’s been reported that Greece has already used all the money they had put aside for natural disasters – we were shaken awake at 3am a few nights ago to be reminded that Greece is a very seismically active place; and who can forget the forest fires in Greece in 2007?  Not to mention the several very active volcanoes.

Anyway, I’m not here to criticize the IMF’s policies in Africa – and I’m not accusing Lagarde of lying when she claims to lose sleep over Nigerien children.  I’m just mystified that she would say those things just three weeks before the Greek election.

In the last Greek election, on May 6, the major issues were “more of the same vs. change” and “illegal immigration.”  The party in power received 13% of the vote, answering the first question, and the ultra-nationalist Golden Dawn party got into Parliament for the first time ever with 21 seats, answering the second.

In the new election, coming up on June 17, the major issues are shaping up to be “austerity vs. growth” and “toeing the EU/IMF line vs. national sovereignty.”  The two old parties, PASOK and New Democracy, represent the austerity and EU/IMF side, and the Syriza and Independent Greeks parties, represent growth and national sovereignty.

Recent polls are all over the place.  Some put ND ahead of Syriza, others put Syriza in front of ND.  The only thing they all have in common is that it will be a very close race.  The IMF and the EU have gone way out of their way over the past week to send the message to Greek voters that New Democracy, Syriza, and PASOK are all lying when they all say that Greece can renegotiate its terms with the EU and the IMF.  PASOK claims it can get the IMF/EU to agree to extend the terms of the pay-back by a year.  New Democracy claims it can get the IMF/EU to agree to “renegotiation of terms.”  Syriza claims it will simply trash the entire agreement.

The question for Greek voters obviously isn’t which of those three they want.  The question is which party they trust to do what the voters want.  Clearly PASOK and New Democracy know that they can’t win by saying “we want to stick to the terms of the agreement,” because that was roundly rejected in the May 6 election.  However, voters should pay attention to the voices coming from the EU and IMF.  They are claiming that they will not allow any renegotiation of any terms.  That means that PASOK and New Democracy won’t be able to do what they claim they will do.  Syriza may well do what it says – who knows.  But New Democracy, if it wins, will have to follow the terms of the agreement – that’s what Lagarde is saying.

And that’s why, I think, New Democracy and PASOK protested so loudly when Lagarde said those things.  They need for the EU/IMF to shut up for three more weeks so they can get elected and continue the austerity path.   With interviews like that, not only does she undermine the parties she wants us to vote for, but she pushes voters toward Syriza.

What on earth was Lagarde thinking?

PASOK president Evangelos Venizelos:  “Nobody should humiliate a people during a crisis and I call on Mrs Lagarde, who insulted the Greek people with her attitude, to rethink what she wanted to say.”

Lagarde’s response was heartwarming:  she clarified that when she said “all these people in Greece who are trying to escape tax” when asked about how she “demands measures she knows may mean women won’t have access to a midwife when they give birth, and patients won’t get life-saving drugs, and the elderly will die alone for lack of care,” what she really meant were rich people.

All those rich people who don’t have access to a midwife when they give birth.

 

12 thoughts on “Greek election and the IMF

  1. I have always believed that there is enough food in the world to feed everyone, but despicable polices such as you have described prevent this. Money will always rule over humanitarian care.

  2. Interesting stuff. Lagarde meant the really rich, who don’t have to wrorry about Greece’s healthcare system. For example, the Lear exhibition opening in the Palace of St Michael and St George, Corfu, was generously funded by various Greek foundations – Leventis, Bodossaki, and Costopoulos. Leventis has operations in Nigeria and Cyprus, and a huge house in Corfu where 80 sat comfortably down to dinner the day before the exhibition opening. A full colour glossy catalogue was given to everyone attending the lavish private view (leaving none left for anyone else to buy between now and when the show ends in mid-August). The extravagance was surprising under the circumstances. Do these companies pay tax in Greece?

    • Maybe she did mean the really rich – but if she did, she wasn’t answering the question that was asked, not even close. It just doesn’t make any sense in the context of the question asked by the interviewer. Do those companies pay tax in Greece? Who knows. I hope so. The Greek Orthodox Church doesn’t.

  3. Well said Heidi! As for taxing the really rich which in Greece mostly means the ship owners, let us not forget that those really rich people employee hundreds of thousands of Greek people and threatening them means threatening the lively hood of their employees. The really rich have the luxury of packing up and leaving, but the employees don’t so maybe Lagarde, Syriza and others should rethink before so easily saying “tax the rich” bc the only people who will be hurt by that is the working class!

  4. Interesting as always. I couldn’t agree more re the squeezing of the poorest NOT helping. They are the ones who spend all their money so there is obviously less going round as well as severe hardship. It really annoys me that so called ‘help’ is usually a loan at a higher percentage that countries more able to have to pay. Only the bankers seem to win from that!
    Thought you may also be interested in this http://www.victoriahislop.com/2012/05/victoria-hislop-the-tragedy-of-my-beloved-greece/ from Victoria Hislop (who wrote The Island and is involved with the adaptation for the Greek TV series based on her book and the SpiniLonga leper colony). This article was in the UK Telegraph newspaper I understand.
    I know that those working for the government and large organisations do pay taxes deducted from pay, but as Victoria also points out, there are many we come across who do not declare income who could afford to pay some tax – eg architects, accountants, builders, electricians, plumbers – who charge quite a lot (although they are not VERY rich) but only give receipts IF you insist and then try to charge sales tax on top. No supermarket or shop gives a price without tax. If so-called professionals can charge similar to their counterparts in the rest of Europe, they can afford to pay their sales tax, social security & tax on it as we do. I do feel the Greek system of charging a set amount of IKA (or other social insurance) per day rather than a lower amount for lower pay encourages the black market though. In UK if you don’t earn much, you don’t pay much income tax or National Insurance, so the black market is much smaller and there is less need for small businesses to try to employ lower wage earners illegally.

    • There are a lot of stereotypes flying around. All I can do is speak for myself. I spend all the money in our household and the ONLY place where I don’t get receipts is at the open-air farmers market. I know this for a fact because I am obsessed with budgeting to the last penny, so I have to carry a notepad to the farmers market to write down exactly what I spend on everything I get there – and they will give receipts if you go early enough in the morning but we go toward the end when they’re basically giving stuff away. Not getting a receipt never happens to me **anywhere else**. – and we had to furnish our entire apartment last year, which meant dozens and dozens of stores (electronics, appliances, textiles, furniture, kitchen stuff, etc); we go to the dentist, doctors, pharmacies, supermarkets, local markets, mechanic, electrician, movers, gas stations, etc. 100% of them give receipts 100% of the time covering the entire bill, without having to be asked. The story may be different in Athens or wherever, but that’s how it is here. So I am annoyed by this constant harping on a situation that doesn’t exist, at least not everywhere.

      We pay more in income taxes than Christine Lagarde does. Her entire income is tax free because she is considered an “international employee” so really I find her comments disgusting. She can pay income tax and then attack taxpayers like us.

      • I too am incensed by the way rich, ‘international employees’ & international company directors, etc avoid paying tax. Surely taxes should be paid in the country in which they are earned OR paid out. Anyone earning more than a basic living wage should pay taxes on income (as well as sales taxes).
        Perhaps outsiders (ex-pats, holiday home owners, etc) are targeted by Greek workmen and professionals as a way of earning tax free and some charge us more too. It seems impossible to get competitive quotes. Fortunately we do most of the work on the house ourselves, but need professionals for official paperwork and certain tasks, even though we have sometimes had to fix poor workmanship after paying. We get receipts in all shops these days, although not official till receipts in all tavernas.
        A couple of years back when our accountant said we must save receipts, we asked for his and he gave us an official receipt for 20 euros but charged 100 to do our tax return (or we could pay him an extra 20 or so for tax)! 2010 was a blip when the Greeks made a law for all property owners to prove a minimum income or transfers of money into Greek banks from abroad (with ‘pink slips’), without appreciating that some holiday home owners don’t need to spend these amounts, or we use cash machines to withdraw from UK banks as required (all provable from UK bank statement, but not accepted by the Greek tax authorities). The next year they realized their error & excluded non-residents, so we’ve not had to pay ‘imputed’ income tax. We do bring a big percentage of our UK earned and taxed money into Greece even though we live on a limited income and can only enjoy our 2 lives by having small cheap houses in cheap areas (Wiltshire & Lesvos) and being careful how we spend.
        There are more stories I could tell about being mislead on prices, thinking we were doing things legally, and not getting proper receipts, just a signed piece of paper…. but I think you get the picture.
        On a more positive note, we are enjoying being back here in Lesvos, working on the house for the imminent arrival of Terry’s daughters (installed new 2nd toilet & washbasin in apothiki, fixed up a basement storage room as a bedroom), enjoying the odd ouzo or wine meze in the village or beer by the harbour. Although many are talking about the ‘krisi’, overall things have not visibly changed and the Greek spirit is strong.
        Good luck after the next election. Let’s hope the new government works FOR the Geek people.

        • I can’t comment on tavernas giving receipts, because we don’t eat out, but I am certain that if they don’t give you a receipt, and you ask them to, they won’t charge you “extra” for the tax. Your accountant sounds shady with his €20 receipt!!

          Glad to hear that you’re enjoying Lesvos! Up here the weather has been dreadful – rain every single day for weeks it seems (perhaps not really, but it sure seems that way). I would love to see a government that the people can have some measure of faith in, that it is representing the people’s best interests. Time will tell….

  5. Heidi, excellent piece, so nice to read something that goes below the surface. I’m glad and surprised to hear that everyone in Komotini is so law abiding. Unfortunately, the situation regarding receipts is appalling on the islands; except for the supermarkets and periptera (kiosks), no one else will give one, and no one dares ask at this point because we can’t afford the extra VAT tacked on to the charge and we don’t want to risk offending the, say, plumber, who won’t come the next time we call. Our electrician in Athens never has his receipt book with him; says he’ll give us one if we need it at the end of the year! These are some of the people who are undermining the state. The social contract has been breached, the state has not fulfilled its duty of providing services, and furthermore the tax offices have not proved capable of collecting revenues — another reason why income is down. We have not even received our property tax assessments for 09, 10, or 11.

    • Wow, Diana, that is shocking!! I would be so furious if that happened to me – how on earth are you supposed to file your taxes without the receipts? We just filed ours and we had a HUGE HUGE pile of receipts and we’re poor, I imagine people with a better income would have many more than we do! Without those receipts, you have to pay a fine – and it’s not a small fine! When we lived on Folegandros, the tax evasion was rampant among the wealthy business owners (hotel and restaurant owners), but I always got a receipt for every sale, no questions asked. Of course we rarely bought anything except food and basic household supplies there anyway so maybe that’s not such a good example.

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