The Greek people have already paid highly for their own governments’ mistakes. Photo: Getty
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The Greek people have paid for their governments’ mistakes – and for the errors of the Troika

The meltdown in Athens and the mistakes of the IMF.

To make sense of the confrontation between the Syriza government in Greece and the Troika (the European Commission, the European Central Bank and the International Monetary Fund), it is vital to understand the one big mistake that each side made. The mistake on the Greek side is well known. In the years following the formation of the eurozone, the Greek government borrowed far more than it should, sometimes secretly. When the full extent of that fiscal profligacy became known, the financial markets realised that default was a distinct possibility, and the government was no longer able to borrow from them.

Over the next few years the Troika provided large sums of money to “bail out Greece”. The minor share of that provided new loans to the Greek government so that it could gradually balance its books. When Greece complains about the austerity imposed on it by the Troika, it is important to understand that without Troika assistance it would have had to endure something even worse and far more immediate. The government was spending much more than it received in taxes, and from the moment it stopped being able to borrow from the markets it would have had to end this. Almost certainly the banking system would have collapsed, and the government would not have had the resources to support its banks.

The Troika’s big mistake was what it did with the larger part of its rescue package. If it had done nothing, the Greek government would have been forced to default on its debt, and those who owned that debt (Greece’s creditors) would have received very little or nothing. Instead, the Troika partly bailed out these creditors, who included many of their own leading banks, in Germany and France in particular. In effect, what the Troika did was to buy much of the Greek government debt owned by these private-sector institutions, at discounted prices. From the Greek government’s point of view, this replaced private-sector debt with debt owned by the Troika.

Why was this partial bailout of Greece’s private-sector creditors a mistake? It meant that the remainder of the rescue package, designed to ease the Greek government’s transition to balance, was far too small. The Troika thought that the Greek government could quickly cut spending and raise taxes with little consequence for the rest of the Greek economy. It was completely and predictably wrong. Sharp and intense austerity played a great part in reducing GDP by 25 per cent and creating mass unemployment.

Imposing less austerity on Greece, producing a more modest decline in Greek output, would have required additional loans from European governments. If this had been available in addition to the existing package, it would have saddled Greece with a debt it surely could not have repaid, and may have been unacceptable to European voters. This is why the partial bailout of Greece’s original creditors was such an error. If it had not been done, and some of that money had been used to allow less austerity to be imposed on the Greek people, we would not be at the present impasse.

Over the past year the Greek government has managed to achieve approximate primary budget balance: its taxes cover all its spending, excluding interest payments. It is no longer asking for more money to cover spending, but simply additional loans to pay back interest and maturing loans. In short, it needs money from the Troika to repay the Troika. As the price of these loans, the Troika is demanding yet more austerity. The Syriza government wants to avoid this to give the economy a chance to recover.

From a macroeconomic viewpoint, this is reasonable, because it would probably be in the long-term interests of the Troika. The OECD estimates that Greece has unused resources worth at least 10 per cent of GDP. A pause in austerity would allow demand to increase, reducing unemployment and generating more taxes. The Greek government could use some of the additional revenue to start repaying its loans.

So why does the Troika insist on continuing with austerity? The Troika contains many different views and interests. Some may still not believe, despite all the evidence, that austerity hurts growth. Perhaps others are happy to see a left-wing government fail, because it does not accept the received wisdom from Brussels and Frankfurt on what good economic policy involves.

Another explanation is that eurozone governments have become victims of their media’s rhetoric. The impression the media conveys is that all of the Troika’s loans have gone to cover Greek government spending. In fact, most went to bail out Greece’s previous creditors and any further loans will just repay existing loans. But to people in the eurozone it seems as if the Troika is transferring more of their money to Greek citizens. In these circumstances, the politicians need to appear to be tough on Greece. They fear that to change policy now would lead their electorates to ask why previous policies have failed, which would expose the Troika’s big mistake.

The Greek people have already paid highly for their own governments’ mistakes before 2010. Now it seems they must suffer as a result of the Troika’s errors. That the governments of the eurozone continue to display a macroeconomic understanding of fiscal policy equivalent to that of Angela Merkel’s imagined Swabian housewife is perhaps not surprising – it has been a consistent pattern since the eurozone began. More surprising is the behaviour of the IMF, established to represent the international community and full of hundreds of economists. That it had the means to stop this happening but chose not to do so is equally tragic.

Simon Wren-Lewis is Professor of Economic Policy in the Blavatnik School of Government at the University of Oxford

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 01 July 2015 issue of the New Statesman, Crisis Europe

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Cambridge Analytica and the digital war in Africa

Across the continent, UK expertise is being deployed online to sway elections and target dissidents.

Cambridge Analytica, the British political consultancy caught up in a huge scandal over its use of Facebook data, has boasted that they ran the successful campaigns of President Uhuru Kenyatta in the 2013 and 2017 Kenyan elections. In a secretly filmed video, Mark Turnbull, a managing director for Cambridge Analytica and sister company SCL Elections, told a Channel 4 News’ undercover investigative reporting team that his firm secretly stage-managed Kenyatta’s hotly contested campaigns.

“We have rebranded the entire party twice, written the manifesto, done research, analysis, messaging. I think we wrote all the speeches and we staged the whole thing – so just about every element of this candidate,” Turnbull said of his firm’s work for Kenyatta’s party.

Cambridge Analytica boasts of manipulating voters’ deepest fears and worries. Last year’s Kenyan election was dogged by vicious online propaganda targeting opposition leader Raila Odinga, with images and films playing on people’s concerns about everything from terrorism to spiralling disease. No-one knows who produced the material. Cambridge Analytica denies involvement with these toxic videos – a claim that is hard to square with the company’s boast that they “staged the whole thing.” 

In any event, Kenyatta came to power in 2013 and won a second and final term last August, defeating Odinga by 1.4 million votes.

The work of this British company is only the tip of the iceberg. Another company, the public relations firm, Bell Pottinger, has apologised for stirring up racial hostility in South Africa on behalf of former President Jacob Zuma’s alleged financiers – the Gupta family. Bell Pottinger has since gone out of business.

Some electoral manipulation has been home grown. During the 2016 South African municipal elections the African National Congress established its own media manipulations operation.

Called the “war room” it was the ANC’s own “black ops” centre. The operation ranged from producing fake posters, apparently on behalf of opposition parties, to establishing 200 fake social media “influencers”. The team launched a news site, The New South African, which claimed to be a “platform for new voices offering a different perspective of South Africa”. The propaganda branded opposition parties as vehicles for the rich and not caring for the poor.

While the ANC denied any involvement, the matter became public when the public relations consultant hired by the party went to court for the non-payment of her bill. Among the court papers was an agreement between the claimant and the ANC general manager, Ignatius Jacobs. According to the email, the war room “will require input from the GM [ANC general manager Jacobs] and Cde Nkadimeng [an ANC linked businessman] on a daily basis. The ANC must appoint a political champion who has access to approval, as this is one of the key objectives of the war room.”

Such home-grown digital dirty wars appear to be the exception, rather than the rule, in the rest of Africa. Most activities are run by foreign firms.

Ethiopia, which is now in a political ferment, has turned to an Israeli software company to attack opponents of the government. A Canadian research group, Citizens Lab, reported that Ethiopian dissidents in the US, UK, and other countries were targeted with emails containing sophisticated commercial spyware posing as Adobe Flash updates and PDF plugins.

Citizens Lab says it identified the spyware as a product known as “PC Surveillance System (PSS)”. This is a described as a “commercial spyware product offered by Cyberbit —  an Israel-based cyber security company— and marketed to intelligence and law enforcement agencies.”

This is not the first time Ethiopia has been accused of turning to foreign companies for its cyber-operations. According to Human Rights Watch, this is at least the third spyware vendor that Ethiopia has used to target dissidents, journalists and activists since 2013.

Much of the early surveillance work was reportedly carried out by the Chinese telecom giant, ZTE. More recently it has turned for more advanced surveillance technology from British, German and Italian companies. “Ethiopia appears to have acquired and used United Kingdom and Germany-based Gamma International’s FinFisher and Italy-based Hacking Team’s Remote Control System,” wrote Human Rights Watch in 2014.

Britain’s international development ministry – DFID – boasts that it not only supports good governance but provides funding to back it up. In 2017 the good governance programme had £20 million at its disposal, with an aim is to “help countries as they carry out political and economic reforms.” Perhaps the government should direct some of this funding to investigate just what British companies are up to in Africa, and the wider developing world.

Martin Plaut is a fellow at the Institute of Commonwealth Studies, University of London. He is the author of Understanding Eritrea and, with Paul Holden, the author of Who Rules South Africa?