Taking a step back from the immediate uncertainty over Greece (see here for the latest updates), I’m struck by how similar the situation is to those created by the old 1980s/1990s IMF and World Bank Structural Adjustment Programmes (SAPs). Reading accounts of the negotiations (especially a story in today’s New York Times about how the Germans, IMF, and ECB don’t trust the Greeks), you could rather easily replace “Greece” with “Nigeria” or “Senegal” and be transported 20 years back in time.
We can go down the similarity-list. An urgent need for new official lending to roll over past debts? Tick. Tough loan conditionality attached? Tick. Domestic pushback and questionable democratic legitimacy? Tick.
Of course, it’s all playing out more publicly/more quickly in Greece today than in sub-Saharan Africa 20 years ago – maybe because the power imbalance isn’t quite as large, so Greece has more room to manoeuvre – but the fundamentals are remarkably similar.
Now I’m actually someone who thinks history has judged the SAPs a bit too harshly, and that the economics of the Washington Consensus – if not the politics or the implementation process – deserve at least some credit for the great boom being seen across the developing world over the last decade. That’s another blog post. Nevertheless, it’s pretty clear SAPs didn’t work all that well, mostly because there was never domestic political buy-in and hence little follow-through on reform programmes. You don’t need to accept a narrative of the World Bank and IMF as being out to exploit the poor to have a problem with this; from a pure positivist/rationalist perspective, SAPs didn’t do a good job of meeting their stated goals.
Coming back to Greece today, the lesson is simply that imposing austerity from outside – no matter what you think about democratic legitimacy – generally doesn’t work very well. Over the past couple days there has been ample media coverage painting the current situation as “will the Greek coalition sign on to the deal or not?”, with the implication that the critical questions are, among others, whether a deal is agreed and whether it will rally the markets.
To me this largely misses the point. I think the historical lesson from the SAPs is that the deal itself is of very little value; it’s the follow through that counts. And a loan agreement that imposes structural adjustment against the wishes of the domestic political class (not to mention the people) is barely worth the paper it’s written on, and is certainly a very poor predictor of what policy changes we’ll actually see over the coming years.
There’s a chance that the next few days will see the situation in Greece unravel if negotiations fall apart completely. But we should be honest in saying that there’s no real chance of anything being “resolved” if a deal is agreed. And in fact, I’d even say that if the Greeks sign on to a deal that clearly lacks domestic backing, the likelihood of the country’s finances being a mess in two or three years time only increases.
Geoffrey Gertz is studying International Relations at the University of Oxford. This post also appears on Tomorrow’s Economy, his personal blog.