Yanis Varoufakis in The IMF's Anger – and what it means for the Eurozone's crashing Periphery 06/06/2013 notes that the IMF under the leadership of Cristine Legarde has, in the recent past, played a duplicitous game over the bailouts to which the crushing austerity demands were linked:
Last February, I was invited to give a keynote talk at a conference of law specialists working on the legal requirements for Europe' against Germany, Frankfurt and Brussels. As one of them put it to me in no uncertain terms, "the Europeans forced us into a program for Greece that sullied the IMF's image (sic)". More importantly, the IMF was livid that Germany was proclaiming a banking union in order to ensure that it never actually happens. That it honours the idea of a Banking Union in the breach rather than in the observance.The IMF's latest report on Greece in in IMF Country Report No. 13/154 (June 2013). Anna Yukhananov reports for Reuters on the IMF's latest admissions in IMF says it lowered own standards for Greek program 06/05/2013:
Of course, there is little doubt that the IMF has only itself to blame for becoming an unquestioning member of a troika bent on 'extending and pretending', with catastrophic results for millions of people in Europe who will now join South East Asians and Latin Americans spitting on the ground every time they hear the acronym IMF. After all it was only a few short months ago that Mrs Lagarde went along, against her better judgment, with yet another monstrous reincarnation of the Greek bailout – as narrated in this post. Come to think of it, Mrs Lagarde was adopting a pattern first displayed by her predecessor: Disagree with Europe’s analysis and policies but, at the crucial moment, back down and legitimise these policies through complicity. [my emphasis]
The IMF said its support for Greece in 2010 was necessary to prevent the nation's problems from spilling over into the rest of the euro zone and the global economy.For Merkel, though, not recognizing and writing off the debt that at the time was clearly unsustainable for Greece was a feature of the 2010 package, not a bug. German and French private banks would have had to take heavy losses. And giving Greece enough to keep going for a few months but not remotely doing what was needed to get it out of trouble allowed Merkel to insist on the destructive neoliberal "reforms" that focus on lowering wages, cutting public services that don't directly benefit the wealthiest, and privatization of state property. The latter giving private interests in the case of Greece the chance to buy up valuable property and state-owned functions at bargain-basement prices.
"There was, however, a tension between the need to support Greece and the concern that debt was not sustainable with high probability," according to the IMF's evaluation.
"In response, the exceptional access criterion was amended to lower the bar for debt sustainability in systemic cases."
After the Greek program was approved, the IMF and the other bailout lenders - the European Commission and the European Central Bank - required Greece to immediately cut some of its debt and implement structural reforms.
There were "notable failures" in the results, the IMF said. Greece remained in the euro zone and cut some of its debt, but failed to restore market confidence. The economy plunged into one of the worst recessions to ever hit a country in peacetime, with output falling 22 percent from 2008 to 2012.
Greece's economy is likely to shrink for the sixth consecutive year in 2013.
The evaluation said the IMF's assumptions for the Greek economy can "be criticized for being too optimistic." [my emphasis]
The four-year drop of 22% in Greek output is a staggering figure. And a measure of the price the Greek people are paying for the benefit of German banks and Merkel's program of maximizing German exports through trashing the countries of southern Europe, with maybe some of the richest countries like France and Luxembourg soon to be on the chopping block.
And the result of the Greek bailout-with-brutal-austerity package was what Keynesian economists and business journalists observed at the time was the likely result. As the economy shrank, the key measure being used by the Troika of debt as a percentage of GDP got bigger as the economy shrank faster than the debt. As the IMF report puts it:
Under the program’s baseline in May 2010, public debt-to-GDP was expected to increase dramatically—peaking at about 155–160 percent (including an expected data revision)—as a result of the contraction in nominal GDP. In the event, the much deeper-than-expected recession caused an even sharper increase in the debt ratio, and debt sustainability concerns were increasingly weighing on sentiment. (p. 6)It's worth remembering that the inadequate response to the Greek crisis then invited speculative attacks on other eurozone countries' bonds, including those of Spain and Italy. A better immediate response wouldn't have solved the underlying problems of the inadequate structure of the common currency zone. But the response that actually happened would up spreading and exacerbating the crisis much faster than would have likely occurred in the event of a more realistic response.
Tags: angela merkel, austerity economics, eu, euro, european union, imf, greece