During an official visit to the LSE in November 2008, the Queen asked a professor why economists had failed to predict the financial crash, the most dramatic event in recent economic history. The professor's answer is not known. A year later, after a British Academy seminar, eminent economists answered by blaming "a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole".
Yesterday the IMF reported that the Greek economy had "taken a turn for the worse" against its earlier predictions. The growth forecast for 2011 was revised downwards from -4% to -6% for 2011 and to -3% for 2012. The 2011 deficit, predicted at 7.5% of GDP, has now been revised to 9%. Greek officials expect it to be more than 10%. Public debt was 130% of GDP in 2009. The IMF predicts now that it would peak at 187% in 2013 and fall to 152% of GDP by 2020, if all measures imposed on Greece succeed. This is unlikely. The selling off of the remaining public assets has yielded very little and negotiations with private creditors who were asked to accept a 50% writedown by the EU October summit have stalled. It will take 10 years, the IMF reports, for Greece to close the competitiveness gap. It will take much shorter to destroy the Greece we know.
The IMF accepts that its forecasts failed badly and blames the government for not fully committing to the programme, institutional and legal hurdles to reform as well as lack of vigour in tax collection. According to Poul Thomsen, the mission chief, the IMF is blameless for the failure of the austerity package it imposed. But unlike the Queen's interlocutors, the IMF cannot claim that this failure was sudden or unpredictable. This will be the fifth successive year of recession, with the Greek economy contracting up to -20% over the period.
Yet the IMF announced more of the same medicine, following Mae West's saying that "you can not get enough of a good thing". Further austerity amounting to €20bn of public spending cuts will be imposed between 2012 and 2015. Around 150,000 civil servants will lose their jobs, unemployment will rise to 19% (but then who believes the IMF predictions?), the already slashed salaries, pensions and social services will be cut further. The minimum wage will be reduced and collective bargaining abolished. This is an image of hell passing as the road to heaven.
The IMF has admitted the failure of its forecasts but doesn't accept responsibility. How badly must the policies misfire before they accept that the treatment is worse than the disease? You don't need to be a Nobel prize-winning economist to know that taking money out of the pockets of impoverished people (civil servants' salaries have been cut by up to 50%) will deepen the recession and destroy any prospects of recovery. But the IMF technocrats are unable to admit that their theories show a "failure of collective imagination".
Will the IMF admit at least that they are destroying millions of lives? The macroeconomic figures are staggering; the social consequences are much worse. Ordinary Greek people have paid a heavy price for the consistent failure of the political and economic elites and the perverse persistence of IMF policies. Unprecedented increases in unemployment, poverty, homelessness, mental illness and criminality are destroying social bonds, reminding us of the catastrophes of the 1930s. The 30s analogy is also borne out by the participation of the extreme rightwing and xenophobic LAOS party in the Athens coalition government. When the far-right Freedom party of Jörg Haider entered the Austrian coalition government in 2000, the EU states were outraged and imposed diplomatic sanctions. In Greece, the EU and IMF conditions led to the entry of the extremists into government.
Only one point of the IMF report seems to bear any relationship with reality. The fund accepts indirectly that popular resistance to the measures has contributed to the failure to meet the targets. The "can't pay won't pay" movement, the "outraged" who occupied the squares of Greece for months, showing direct democracy in action – now repeated elsewhere in the Occupy sites – the electricians not prepared to cut the supply of people if they cannot pay the poll tax illegally collected through electricity bills, have shown that ordinary people can frustrate the plans of mighty powers.
The Queen's "naive" question can have only one answer: the neoliberal economics of austerity and punishment of the weakest in our society is not a road to knowledge or prosperity. The Greek people are asking the same question of the IMF technocrats. In doing so, they are fighting for the future of another Europe not much in evidence in European summits