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Greek tragedy

Austerity will save the euro, but could sink Greece

At the time of writing, a deal was close to being hammered out at the annual meeting of the International Monetary Fund in Washington DC in which some of Greece’s creditors have agreed to write off what is owed to them. The move is designed to ward off a possible default, and is a sensible and realistic way forward for the country. The same cannot be said for other aspects of the austerity pill being administered to Greece.

Last week, Greece’s minister for education, lifelong learning and religion, Anna Diamantopoulou, confirmed at a conference in Rome that, in addition to raising taxes and laying off tens of thousands of public employees, the government is in the process of closing down 2,000 schools and pulling down the shutters at 25 university departments, as part of plans to cut education costs in half.

Rightly, these so-called “reforms” have caused outrage. Over 1,000 leading academics in more than 40 countries have signed a petition calling on Greece’s government to reverse its plans.

Locking the gates to schools and university lecture rooms will certainly have the effect of reducing public spending, but would be an incredibly short-sighted thing to do. Quite why Greece’s creditors in the eurozone—indeed quite why the government in Athens—would agree to this is beyond comprehension. A sustainable solution to Greece’s crisis is for its economy to grow and for more of its young people to find useful work.

That won’t happen by cutting spending on education and training.

If anyone—and especially anyone working for an international financial institution—has doubts about the short-sightedness of cutting education spending, they should type the words “structural adjustment” into any popular Internet search engine; or into any database of news articles from the 1980s through to the mid-1990s.

During that period institutions such as the World Bank and the IMF enforced a series of severe conditions on countries applying to them for finance or loans. The conditions—which typically included drastic cuts to public spending, and privatisation of state-owned companies and services—collectively came to be known as structural adjustment.

In a number of cases, structural-adjustment policies increased poverty and inequality because the cuts being administered included reducing spending on social programmes and education.

By the late 1990s the World Bank had reversed gear, emphasising in a landmark report in 1998 that countries in search of higher economic growth need to invest in their knowledge institutions, not cut them down [Knowledge for Development, World Bank annual report, 1998].

The reason for the change was that the bank’s research department had discovered that, in some cases, its policies had increased poverty and inequality.

What is surprising is how so few working on the Greek bailout seem to have any memory of this episode in international finance.

The people of Greece are the victims of a combination of events, not all of their own making. But the medicine being administered is not just bitter; it could prove to be toxic.