Tens of thousands of people came to Athens Syntagma Square to hear Greek Prime Minister Alexis Tsipras call for a 'No' vote in the upcoming Greek austerity referendum, July 4, 2015. Debets\/Press Association. All rights reserved. I <\/i><\/p>\n
A call on the IMF: Since In the latest Article IV report Nine years have passed <\/i><\/p>\n The United States also experienced Technically, on August Such self-congratulatory The real problem is with \u201cNonetheless, Translating this polite Greece became a member The Greek economy was, Greece clearly did not The 2004\u20132007 global When the IMF\u2019s executive On October 4, George Starting Greek German chancellor Angela From the start, it was Olivier Blanchard, the IMF\u2019s chief economist, To all of the executive Switzerland\u2019s Weber In Athens, a few days With that, the Alongside the economic As elections approached Tsipras\u2019s rhetoric was Amidst this people\u2019s rebellion, a technocratic interlude of The Yet, The most Those who were not in European policy and Meanwhile, Syriza steadily gained ground while economic On January 25, 2015, Greek citizens responded As in all economic matters during the Greek crisis, the Stripped of drama, Syriza\u2019s demand was simple: debt relief, To be sure, the frenzy But European authorities Stock prices of Greek Only the unpredictable Juncker, by now Through The IMF\u2019s It was my position in On June In the On Yet, on Historians Upon its \u201cexit,\u201d the The IMF has since July Thus, if the government With a straight face, the I have good reason to Greece is the poster child I have written this The structure of the Thus, the Greek story is The IMF sits at the For this reason, given I recognize that the IMF To the Greeks, the Up until the second half I suspect that in my [This essay draws Tens of thousands of people came to Athens Syntagma Square to hear Greek Prime Minister Alexis Tsipras call for a 'No' vote in the upcoming Greek austerity referendum, July 4, 2015. Debets\/Press Association. All rights reserved. I A call on the IMF: Since July 2015, the IMF has called on European governments to forgive a…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1021","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/posts\/1021","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1021"}],"version-history":[{"count":0,"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/posts\/1021\/revisions"}],"wp:attachment":[{"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1021"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1021"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1021"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nJuly 2015, the IMF has called on European governments to forgive a significant
\nchunk of the Greek government\u2019s unrepayable debt. Why doesn\u2019t the IMF itself
\nforgive the debt owed to it by Greece? The IMF, in concert with the European
\nUnion, repeatedly and arrogantly dismissed sound economic advice and norms. The
\nresult: the Greek economy has suffered lasting damage and, even more
\ngrievously, Greek citizens have lost their voice in charting their own
\ncountry\u2019s economic future. Since European authorities are busy rewriting
\nhistory, the IMF must forgive Greek debt to show that someone is accountable to
\nthe people of Greece.<\/em><\/p>\n
\non Greece, the International Monetary Fund (IMF) begins its economic
\nhealth check with this dramatic but, by now, depressingly familiar chart.<\/p>\n
\nsince Greece\u2019s crisis began in October 2009. Since then, Greek GDP fell by 25
\npercent and is stuck at that level. More than a third of Greeks live below the
\npoverty line; young and working-age people are at especially high risk of
\npoverty. Young Greeks, facing uncertain job prospects at less than living wages,
\ncontinue to leave the
\ncountry in large numbers.<\/p>\n
\na 25 percent decline in GDP during its Great Depression, but (as the IMF\u2019s
\nchart shows) by the seventh year after the start of that crisis, GDP was back
\nto where it began. Other than perhaps Venezuela, Greece has experienced the
\nmost extraordinary economic devastation in a country not plagued by civil or
\nexternal war. And unlike the mindlessly self-inflicted Venezuelan disaster, the
\nGreek devastation has occurred under the tutelage of the IMF, European
\ngovernments, and the European Central Bank (ECB). Other than perhaps Venezuela, Greece has experienced the
\nmost extraordinary economic devastation in a country not plagued by civil or
\nexternal war.<\/p>\n
\n20, Greece \u201cexited\u201d from its financial bailout program that the IMF and
\nEuropean Institutions (EIs) have administered since May 2010. A chorus of
\nEuropean leaders rushed to \u201cpat themselves on their
\nbacks.\u201d Donald Tusk, president of the European Council, was first,
\nwith an ode to \u201cEuropean solidarity.\u201d German
\nfinance minister Olaf Scholz described
\nthe \u201crescue of Greece\u201d as a \u201cmeasure of European solidarity.\u201d Olli Rehn,
\nEuropean economic and monetary affairs commissioner through much of the Greek
\nprogram, wrote, \u201cIt is time to note
\n#Europe has stood by Greece.\u201d<\/p>\n
\nmissives \u2013 implying a fanciful picture of Greek economic achievement aided by the
\nsagacity of European authorities \u2013 were utterly discordant with the widely
\nperceived reality. As philosopher Ludwig Wittgenstein may have said, European
\nleaders were trying to bewitch the mind by means of language. The political theorist
\nHannah Arendt would have understood the phenomenon. More than a half century
\nago, she wrote, \u201cTruth and politics are on rather bad terms with each other,
\nand no one, as far as I know, has ever counted truthfulness among the political
\nvirtues.\u201d In this age when \u201ctruth is not truth,\u201d the duplicitous
\nlanguage used by European leaders should not be a surprise.<\/p>\n
\nthe word \u201cexit.\u201d The IMF\u2019s report makes clear that the Greek government\u2019s
\npolicies and actions will continue to be tightly reviewed by the European Institutions:<\/p>\n
\ngiven the high European official sector exposure to Greece (close to \u20ac260
\nbillion), Greece will engage in \u2018enhanced\u2019 post-program monitoring (PPM) with
\nthe EIs, which entails higher frequency (quarterly) engagement and monitoring
\nof specific policies than in the other Euro Area post-program countries.\u201d<\/i><\/p>\n
\nbureaucratic language, Greeks owe the EIs \u20ac260 billion \u00ad\u2013 and so will remain
\nbeholden to them. The EIs have promised to forgive some part of the debt, but the
\nslow drip of forgiveness will require Greek governments to act as the EIs
\nspecify. Already on August 22, a Greek news website
\nwrote that the \u201cpost-programme era\u201d would begin with an immediate
\nvisit by the \u201cinstitutions\u201d to discuss Greece\u2019s budget for 2019. Greece is
\ntechnically exiting the bailout program, but there is no true exit: Greece\u2019s parliament
\nwill have limited economic decision-making authority for years, or perhaps
\ndecades.<\/p>\n\u201cI
\nam just amazed that this continues\u201d<\/strong><\/h2>\n
\nof the European Economic Community (forerunner of the European Union) in January
\n1981. The European Commission had advised against rushing Greece into the
\nCommunity. The Commission\u2019s concern was that once Greece complied with the requirement
\nof lower trade tariffs, Greek producers would not be able to compete against
\nforeign competition. But French president Val\u00e9ry Giscard d\u2019Estaing insisted \u2013 some
\nsay, in an effort to protect Greece\u2019s fledgling democracy.<\/p>\n
\nindeed, uncompetitive. The government twice borrowed from the European
\nCommunity; twice it did not live up to the commitments under which it had
\nborrowed. But worse, Prime Minister Andreas Papandreou fostered a deeply
\ncorrupt political system, which sucked in all political parties.<\/p>\n
\nbelong in the eurozone. But German chancellor Gerhard Schr\u00f6der, in a bid to
\nprove his pro-European credentials, waved Greece into the euro area, while
\nother senior European officials cheered the enlargement of the single-currency
\nzone as a marker of its success. Greece became a member of the eurozone on
\nJanuary 1, 2001, and a December 2004 audit of Greek fiscal accounts revealed
\nthat Greece\u2019s fiscal deficit around the time of the euro entry decision was, in
\nfact, significantly higher than reported. The Greek government had fudged its
\naccounts to qualify for entry. Joaqu\u00edn Almunia, the
\nEuropean economic and monetary affairs commissioner, said he had not known.
\nGreece\u2019s euro entry decision, he said, relied on the \u201cbest available evidence\u201d
\nat the time. But he acknowledged, \u201cWe
\nhad a very sad experience in the case of Greece.\u201d<\/p>\n
\neconomic bubble kept Greece and other eurozone periphery economies afloat.
\nIndeed, Greece seemed to have escaped the brunt of the global financial crisis.
\nOn July 20, 2009, the
\nIMF issued a cautiously optimistic Article IV report on Greece. The aftershocks
\nof the collapse of Lehman Brothers in September 2008 were still being felt
\nworldwide. But Greek banks, the IMF concluded, were stable; they had adequate
\nreserves to deal with more adversities. While the IMF made its customary pitch
\nfor more fiscal belt-tightening, it complimented the government for \u201cwelcome\u201d
\nmeasures to rein in its budget deficit.<\/p>\n
\ndirectors (representing the shareholding member countries) met to discuss the
\nreport on July 24, a cryptic sentence about the poor quality of Greek
\nstatistics worried Sweden\u2019s Jens Henriksson. \u201cI am just amazed that this
\ncontinues,\u201d he said. Were the Greeks incompetent, he asked, or were they
\nintentionally making up the numbers? It was a closed-door meeting, and the
\nremarks would not become public for another five years. The IMF economist in
\ncharge of Greece, Bob Traa, responded frankly. Incompetence, he said, was not
\nthe problem. Greece\u2019s leaders consciously chose to mislead, Traa explained,
\nbecause if they revealed the severe problems they faced, they would invite
\nunwelcome criticism. By doctoring the numbers, they hoped to \u201ccontrol the
\nmessage.\u201d<\/p>\n
\nPapandreou, son of Andreas Papandreou, was elected Greek prime minister.
\nDespite the IMF\u2019s rosy depiction, corruption was still rampant, and life was
\nhard, especially for the young. At an election rally some days earlier, a thirty-year-old
\nunemployed accountant had forlornly said, \u201cwe vote for hope.\u201d And in his moment
\nof triumph, Papandreou bravely declared, \u201cWe are a
\ncountry with great potential.\u201d He promised \u201cdeep changes\u201d to create a \u201cjust and
\nequal\u201d society.<\/p>\n
\nOctober 8, government officials announced that the budget deficit for the year
\nwould not be 6 percent, as previously anticipated. The new estimate steadily climbed
\nto 12.5 percent. Almunia again bore the brunt of the embarrassment. He meekly
\nsaid, \u201cThese serious discrepancies will require an open and deep investigation
\nof what has happened.\u201d Jean-Claude Juncker, head of the Eurogroup (the group of
\neurozone finance ministers), who also knew of the brewing problems, threw in
\nmore meaningless words: \u201cThe game is over, we need serious statistics.\u201d<\/p>\n
\nleaders had delivered to their people a corrupt, bankrupt, and dispirited nation,
\nwhile European and IMF officials had little to offer except an occasional word
\nof cheer. For their acts of omission and commission, together they now faced a
\nrushing financial crisis.<\/p>\n\u201cNot
\non the table\u201d<\/strong><\/h2>\n
\nMerkel took note some months later, in December 2009, commenting, \u201cWe have
\nproblem children in Europe.\u201d But she was politically hamstrung. She understood
\nthat German taxpayers would punish her if she lent Greece a helping hand. So,
\nshe put her faith in Greece miraculously solving its own problems. The Greek
\ncrisis steadily intensified.<\/p>\n
\nclear that the Greek government\u2019s creditors needed to bear substantial losses.
\nIn public, the Wall Street Journal<\/em>\u2019s <\/em>editors <\/em>advocated imposing losses on creditors. In two editorials in April
\n2010, they argued that the alternative would be extreme fiscal austerity, which
\nthe Greek economy would not be able to bear. Nearly simultaneously, in
\nclosed-door meetings of the US Federal Reserve\u2019s monetary decision-making
\nbody, the Federal Open Market Committee (FOMC), economists spelt out the logic.
\nIf the Greek government miraculously implemented
\nthe extraordinary tax increases and spending cuts that European governments and
\nthe IMF were proposing, businesses and households would contract rapidly and
\nGDP would fall sharply. Since tax revenues would fall along with GDP, the
\nbudget deficit would not shrink as much as anticipated.
\nBecause of the decline in GDP and the smaller-than-expected deficit
\nreduc\u00adtion, the debt burden \u00ad\u2013 the debt-to-GDP ratio \u2013 would rise from its
\nalready high level. Interest rates paid by the government would quickly go up. The
\neconomists at the FOMC concluded that although European authorities considered \u201cdebt
\nrestructuring\u201d (a euphemism for forcing losses on creditors) to be \u201cunthinkable,\u201d
\nthe austerity-centered financial bailout would soon enough make restructuring
\n\u201cunavoidable.\u201d<\/p>\n
\nunderstood the logic only too well. In a confidential memo to his bosses, he
\nlaid out the numbers that had led the FOMC economists to conclude that a debt
\nrestructuring was \u201cunavoidable.\u201d The Greek government could repay its debt
\nthrough austerity, he wrote, but not with a \u201chigh degree of probability.\u201d In
\nessence, the staff report said that only under some hopelessly optimistic
\nscenarios could the government honor its debts. At the Executive Board meeting
\non May 9, 2010, Ren\u00e9 Weber, the IMF\u2019s executive director from Switzerland, who was
\nnot privy to Blanchard\u2019s memo, made a powerful case for immediate
\nrestructuring. Chris Legg, the Australian executive director, reminded the Board
\nthat the IMF had gone through a painful experience with Argentina not long before.
\nThe delay in restructuring then, he pointed out, had only made the problem
\nworse, which the IMF itself later recognized in one of its customary mea culpas<\/em>. Other executive directors,
\nincluding India\u2019s Arvind Virmani, chimed in.<\/p>\n
\ndirectors calling for immediate restructuring of Greek debt, Poul Thomsen, the
\nIMF\u2019s man in charge of the bailout program, had a simple answer. It was \u201cnot on
\nthe table,\u201d he said, because European authorities, supported by US Treasury
\nSecretary Timothy Geithner, claimed that any restructuring initiative would
\nlead to a Lehman-like panic and global financial meltdown. In the eurozone, the
\nECB was the most vociferous proponent of this view. Neither contemporary
\nassessments \u2013 such as those by the Wall
\nStreet Journal <\/em>and FOMC economists \u2013 nor later academic studies supported
\nthis dire prediction of financial contagion. Yet, the view took hold. As Lee
\nBuchheit, the veteran sovereign debt attorney, trenchantly said, the ECB had
\n\u201cthe mentality of a six-year-old boy who gets it into his head that demons lurk
\njust beyond his bedcovers in a dark bedroom. Panic grows with every hour.\u201d His
\ndescription applied to all the politicians and technocrats who mattered.<\/p>\n
\ntried one more time. Didn\u2019t the IMF\u2019s rules, instituted after the Argentina
\ndebacle, require that a potential borrower\u2019s debt be restructured if the
\ngovernment\u2019s debt was not repayable with \u201ca high degree of probability?\u201d Since
\nIMF staff refused to say that the Greek government would repay debt with high
\nprobability, why was there even a choice? IMF management had changed the rules
\nto allow the Greek program to go ahead. The management invoked the specter of
\ncontagion, for which, a dejected Weber pointed out, it had offered no evidence.
\nThe IMF\u2019s first deputy managing director, John Lipsky, was annoyed by this
\npoint. Even a discussion of debt restructuring, he said, could cause market
\ntremors. There was \u201cno Plan B,\u201d he said.<\/p>\n
\nearlier, Greek legislators had made a bid to soften
\nthe austerity being required of the Greek population, to \u201cmake the wage cuts
\nless steep or find less painful alternatives.\u201d As angry protestors outside the
\nparliament building chanted, \u201cLet the Whorehouse Burn,\u201d Finance Minister George
\nPapaconstantinou told the parliamentarians inside that it was too late to make any
\nchanges. \u201cIt was a take-it-or-leave-it proposition,\u201d
\nhe said. As angry
\nprotestors outside the parliament building chanted, \u201cLet the Whorehouse Burn,\u201d
\nFinance Minister George Papaconstantinou told the parliamentarians inside that
\nit was too late to make any changes.<\/p>\n
\nausterity-laden Greek program went ahead. Briefly, IMF\u2019s Thomsen and German finance
\nminister Wolfgang Sch\u00e4uble lauded the Greek government for its brave efforts to
\nfulfill the program\u2019s requirements. But the arithmetic of austerity quickly and
\nferociously bit in. Exactly as predicted, the Greek economic collapse began.<\/p>\nThe
\nGreek citizens\u2019 rebellion<\/strong><\/h2>\n
\nimplosion between 2011 and 2014, Greek democracy was utterly eviscerated. In
\n2011, George Papandreou proposed holding a referendum to ask Greek citizens if
\nthey were willing to bear the unbearable austerity. Papandreou was hauled up
\nbefore Merkel and French president Nicholas Sarkozy, who told him that if he
\nwent ahead, he risked stoppage of the bailout funds. Papandreou resigned. He
\nwas replaced by the unelected, technocratic Lucas Papademos, a former ECB vice
\npresident, who enforced the austerity measures demanded by the creditors and
\nfinally undertook, in March 2012, the necessary restructuring of privately held
\nGreek debt. Private creditors took historically large losses. But this was not
\nenough. European authorities were forced to provide relief on official debt,
\nwhich they did in driblets. Every several months, they lowered the interest
\nrates on their loans and extended the duration of repayment. Yet, the Greek government
\nbarely stayed afloat, and kept borrowing from its official creditors to repay
\nthem.<\/p>\n
\nin May 2012, the economy was in chaotic decline. The unemployment rate was surging
\ntoward 25 percent. In their desperate search for alternatives to their crushing
\neconomic pain, Greek citizens gave Syriza, the anti-austerity and, until then,
\nfringe political party, 17 percent of the vote. Alexis Tsipras, Syriza\u2019s thirty-seven-year-old
\nleader, called for an end to \u201cbarbaric austerity.\u201d<\/p>\n
\nnot welcome in Berlin or Frankfurt. J\u00f6rg Asmussen, until recently a minister in
\nMerkel\u2019s government and now an ECB Governing Council member, spoke as a German
\npolitician rather than as a neutral central banker. He had a tough message for
\nTsipras: \u201cGreece needs to be aware that there is no alternative to the agreed
\nreform programme if it wants to remain a member of the eurozone.\u201d The bullying
\ntone adopted by Asmussen and others encouraged greater defiance in Greece. When
\nthe May elections failed to deliver a governing coalition, Greek citizens gave
\n27 percent of their votes in June\u2019s follow-up election to Syriza, which established
\nitself as the leading opposition party.<\/p>\n
\nsome importance transpired. Everyone agreed that
\ngovernments that lived beyond their means needed to tighten their belts.
\nTherefore, the debate was not about whether to implement fiscal austerity, but
\nrather about how quickly <\/em>to tighten the belt. In October 2012, the IMF\u2019s
\nBlanchard and his colleague Daniel Leigh gave a clear answer: not too quickly
\nin the midst of a recession.<\/p>\n
\ncaution on excessive and too-rapid austerity rested on a number known as the
\nfiscal multiplier. Blanchard and Leigh estimated that if the economy was
\nalready weak and a government cut spending (or raised taxes) by a euro, GDP
\nwould fall by nearly two euros; thus, the fiscal multiplier during a recession
\nwas close to 2.0 and not 0.5 as the IMF had previously assumed.
\nQuite simply, Blanchard and Leigh were saying that in the condi\u00adtions
\nprevailing then, aggressive austerity was causing GDP and, hence, tax revenues
\nto fall far too rapidly, and so, paradoxically, austerity was increasing the
\nburden of repaying debt; it was causing the debt-to-GDP ratio to rise.
\nVirtually every published research study agreed with the Blanchard-Leigh
\nanalysis and recommendations. Yet, despite the overwhelming
\nscholarly evidence, European authorities reacted furiously to the
\nBlanchard-Leigh estimate of the fiscal multiplier.<\/p>\n
\ndespite the overwhelming scholarly evidence, European authorities reacted
\nfuriously to the Blanchard-Leigh estimate of the fiscal multiplier. The
\nestimate could not be correct, they said, because they knew that austerity did
\nnot cause a slowdown in growth. To the contrary, they claimed that fiscal
\nrestraint by governments helped instill confidence that taxes would be lower in
\nthe future and that such confidence encouraged investment and growth. European
\npoliticians and technocrats insinuated that Blanchard and Leigh had improperly
\nused the prestige of the IMF to question the deeply held European belief that
\nausterity was always an honorable undertaking. Despite the overwhelming scholarly evidence, European authorities reacted
\nfuriously to the Blanchard-Leigh estimate of the fiscal multiplier.<\/p>\n
\nremarkable expression of this conviction was an angry let\u00adter, dated February
\n2, 2013, and posted some days later on the European Commission\u2019s website.
\nAddressing European finance ministers, European Commission vice president Olli
\nRehn said that not only was the Blanchard-Leigh research wrong, it had
\ncertainly \u201cnot been helpful.\u201d<\/p>\n
\nintellectual inner cir\u00adcles gasped in disbelief. Soon the Rehn letter became
\nthe object of ridicule. \u201cNo debate please, we\u2019re Europeans,\u201d was the title of a particularly tren\u00adchant critique authored by
\nJonathan Portes, director of a London-based think tank, the National Institute
\nof Economic and Social Research. \u201cIt just seems bizarre,\u201d Portes wrote, that
\nRehn should be trying to muzzle a \u201ctheoretically based and empirically
\ngrounded\u201d academic paper on a subject of great con\u00adtemporary importance.<\/p>\n
\nconditions remained bleak. By December 2014, it
\nappeared that Syriza, with its promise to lighten the burden of austerity, was
\non its way to a parliamentary victory. German finance minister Sch\u00e4uble relayed
\na warning from Berlin: \u201cNew elections change nothing.\u201d
\nThe
\nGreek gov\u00adernment, he said, echoing Asmussen from nearly three years earlier,
\nmust stick to the program in place.<\/p>\n
\nby electing Syriza to power with a comfortable parliamentary majority. Tsipras
\nbecame prime minister with a mandate to negotiate debt relief and dial down the
\nausterity. European leaders \u2013 fiery advocates of democratic ideals \u2013 were
\naghast at the Greek people\u2019s revolt against policies dictated from Berlin,
\nBrussels, and Frankfurt. The interna\u00adtional media faithfully echoed dire
\npredictions for Greece\u2019s fate. European leaders \u2013 fiery advocates of democratic ideals \u2013 were
\naghast at the Greek people\u2019s revolt against policies dictated from Berlin,
\nBrussels, and Frankfurt.<\/p>\n\u201cIt\u2019s
\na take-it-or-leave-it offer,\u201d once again<\/strong><\/h2>\n
\nreceived wisdom was clear. To forgive debt is twice-blessed. The debtor\u2019s
\nburden is reduced and the creditor gains because the debtor is now more
\nreliably able to service the remaining debt and is a better counterpart for
\ntransactions in the future. The wisdom goes back at least to John Maynard
\nKeynes, who in 1919 had argued for canceling
\nGermany\u2019s debts and limiting the war reparations owed to the victorious Allied
\ngovernments. Enforcing those payments would impover\u00adish Germany, Keynes said,
\nin which case, he famously warned, \u201cvengeance, I dare say, will not limp.\u201d
\nAmong contemporaries, U.S. president Barack Obama said to CNN\u2019s Fareed Zakaria
\nthat it was wrong \u201cto squeeze more and more out of a population that is hurting
\nworse and worse.\u201d Jeffrey Sachs, Columbia University economist and sovereign
\ndebt specialist, was a Syriza advisor and advocate.<\/p>\n
\nwhich would allow less austerity. This demand had overwhelming support in both
\nthe scholarly economics literature and the practice of economic policy. Finance
\nminister Yanis Varoufakis\u2019s specific proposal was that Greece would repay its
\ndebt by a formula linked to GDP: debt servicing would be greater when Greek GDP
\nwas growing faster. This would allow less austerity, especially in slow-growth
\nphases.<\/p>\n
\nat the moment was great. Syriza\u2019s leaders were impatient; European leaders were
\nhorrorstruck. European authorities and the IMF held all the cards, and it would
\nhave done them great credit to recall Arendt\u2019s cautionary words: \u201cTo hold
\ndifferent opinions and to be aware that other people think differently on the
\nsame issue shields us from Godlike certainty which stops all discussion and
\nreduces social relationships to an ant heap.\u201d The Greek people had made an
\neminently sensible plea. Was anyone accountable to them? True democratic
\nleaders would have recognized in that moment a need to deliberate and reach a
\nsensible compromise. The Greek people had made an
\neminently sensible plea. Was anyone accountable to them?<\/p>\n
\nnever allowed a conversation around the core imperative of reducing Greece\u2019s debt
\nburden. Syriza formed a government on January 25, 2015. On January 31, Erkki
\nLiikanen, governor of Finland\u2019s central bank and, in that capacity, a member of
\nthe ECB\u2019s Governing Council, threatened that the ECB would stop funding Greek
\nbanks if the Greek government did not agree to the terms of the creditors. And
\non February 4, the ECB decided Greece\u2019s fate. In an aggressive move that took
\neveryone by surprise, the ECB cut off funding to Greek banks, preemptively
\nimmobilizing the Greek government before it could begin negotiations with its
\ncreditors. The ECB withdrew an earlier arrangement under which Greek banks used
\ntheir government bonds as collateral (security) to obtain funds for running
\ntheir day-to-day operations. Although Greek government bonds had a junk rating
\nand normally only higher-rated bonds qualified as collateral, the ECB had
\nwaived that requirement to help the banks stay afloat. With its February 4
\ndecision, the ECB revoked that waiver. Greek banks could now borrow only from
\nthe Greek central bank under an Emergency Liquidity Arrangement (ELA); ELA
\nfunds carried a higher interest rate and, moreover, could be turned off at any
\ntime, thus choking the Greek financial system.<\/p>\n
\nbanks fell sharply, and two days later, the rating agency S&P pushed the
\ngovernment bonds\u2019 rating further into junk territory. With continuing deposit
\nflight from Greek banks and the threat of a financial meltdown, the Syriza
\ngovernment rapidly lost all leverage before it could use its economic argument
\nin a political negotiation.<\/p>\n
\nEuropean Commission president, had a moment of clarity. On February 18, he
\nsaid, \u201cWe have sinned against the dig\u00adnity of the people of Greece, Portugal,
\nand sometimes Ireland.\u201d He added, \u201cEverything that\u2019s called austerity policy is
\nnot necessarily austerity policy. Because often those austerity policies end up
\nbeing excessive.\u201d Previously, as Luxembourg\u2019s finance minister, Juncker had
\nhimself been part of the col\u00adlective creditors\u2019 decisions on the Greek program.
\nRecalling his complicity in the formulation and enforcement of the policies he
\nwas now criticizing, Juncker added, \u201cI seem stupid for saying this, but we need
\nto learn lessons from the past and not repeat the same mistakes.\u201d He even
\nquestioned the \u201cdemocratic legitimacy\u201d of European creditors and of the IMF in
\ntheir unac\u00adcountable rush to impose punitive policies. But Juncker\u2019s
\ninexplicable truth-telling did not fit the accepted narrative. The mainstream
\nmedia ignored his statement. Juncker\u2019s
\ninexplicable truth-telling did not fit the accepted narrative… The mainstream media ignored his statement.\n<\/p>\n
\nthe first half of 2015, the IMF stood firmly on the side of the European
\ncreditors. While the northern members of the ECB\u2019s Governing Council \u2013 supported
\nby France\u2019s Beno\u00eet Coeur\u00e9 and President Mario Draghi \u2013 kept up threats of
\nhalting disbursement of ELA funds to Greek banks, the IMF added to the pressure
\non Greece. It did so by remaining silent on the mat\u00adter of debt relief and by
\nreinforcing the demand that the Greek government achieve a primary budget
\nsurplus (a surplus net of interest payments) of 4.5 percent of GDP, insisting
\nespecially and repeatedly on wage and pen\u00adsion cuts. Thus, despite the internal
\nwarning by Blanchard and Leigh, the IMF\u2019s April 2015 projections foresaw the
\nGreek primary surplus reaching 4.5 percent of
\nGDP by 2016 and remaining near that
\nextraordinary level as far as the projection horizon. Coming on top of the
\nunprecedented austerity, such further demand for belt-tightening would have strangled
\nthe Greek economy.<\/p>\n
\nmanagement was acting, as it often does, in step with its major shareholders\u2019
\npreferences. Obama could have restrained the IMF. But despite having talked a
\ngood game, he was unwilling to lend his political weight to the Greeks. The
\nGerman position held sway over the IMF\u2019s manage\u00adment and board. Obama
\ncould have restrained the IMF. But despite having talked a good game, he was
\nunwilling to lend his political weight to the Greeks.<\/p>\n
\nthose months that the Greek government be
\ncalled on to maintain a primary budget surplus of 0.5 percent of GDP and nearly
\nall of Greek debt be written off so that in three years, with its extremely low
\ndebt burden, the government could be ready to borrow from private lenders on
\ndebt contracts that allowed for automatic debt restructuring upon reaching
\nclearly defined stress triggers. Such debt contracts would limit the incentive
\nto borrow and lend. None of this, however, was politically feasible.<\/p>\n
\n25, five months after Syriza came to power, Varoufakis brought up the question
\nof debt relief again at a meeting of European finance ministers. Repeatedly
\nrebuffed by the ministers, he turned to the IMF\u2019s managing director Christine Lagarde,
\nwho also attended these meetings. Varoufakis said, \u201cI have a question for
\nChristine: Can the IMF for\u00admally state in this meeting that this proposal we
\nare being asked to sign will make the Greek debt sustainable?\u201d Lagarde knew the
\nanswer to that ques\u00adtion. In an analysis just
\ncompleted, IMF staff had concluded that without
\nsubstantial debt relief, the Greek government\u2019s debt would remain \u201cunsus\u00adtainable\u201d;
\nthe government would never be able to repay its debts. But before Lagarde could
\nrespond, Dutch finance minister Jeroen Dijsselbloem told Varoufakis, \u201cIt is a
\ntake it or leave it offer, Yanis.\u201d It was always take it or leave it: in May
\n2010 and June 2015.<\/p>\n
\nlate evening of June 25, Tsipras announced that on July 5, Greek citizens would
\nvote in a referendum whether to accept the creditors\u2019 terms. On Saturday
\nmorning, June 27, eurozone \u201cpartners,\u201d as they called themselves, assembled in
\nBrussels to deny Greece extension of the financial assistance program due to
\nexpire on Tuesday. Depositors in Greek banks panicked and began withdrawing
\ntheir money. On Sunday, as cash machines ran dry, the ECB froze the level of
\nELA that the Greek central bank could provide its banks. The panic escalated,
\nand the government imposed controls on the amount of cash withdrawals. Greek
\nbanks would not open on Monday morning.<\/p>\n
\nThursday, July 2, the IMF\u2019s report, which made clear that the Greek government\u2019s
\ndebt was unsustainable, was leaked. Thus, Greek citizens went into the
\nreferendum knowing that their government could not repay its debts and, facing
\nlimits on how much money they could withdraw, they could foresee that a no vote
\nwould entail months of hardship.<\/p>\n
\nJuly 5, 61 percent of Greeks voted oxi<\/em>,
\na resounding no. In fact, a student said she had voted \u201cOxi, oxi, oxi<\/em>.\u201d \u201cWhat you have heard,\u201d she exclaimed, \u201cis the voice
\nof the people, the rage of the gods.\u201d According to one estimate, 85 percent of
\nthose between the ages of eighteen and twenty-four voted oxi<\/em>. A student who had just completed her master\u2019s degree said, \u201cI have
\nabsolutely no chance of work; basically, I am being told to emigrate.\u201d \u201cWhat
\nyou have heard,\u201d she exclaimed, \u201cis the voice of the people, the rage of the
\ngods.\u201d<\/p>\n
\nwill debate whether Tsipras was foolish or na\u00efve in calling the referendum. But
\nit did give the Greek people one more chance of saying they had not been heard
\nand no one was accountable to them. We will never know what might have happened
\nhad Tsipras followed the people\u2019s mandate and rejected the European demands. He
\nchose to return to the European fold and the Greek economy continued to muddle
\nthrough to its exit.<\/p>\nGreece
\nneeds debt relief so that the economy can grow again<\/strong><\/h2>\n
\nGreek government is required to maintain a primary surplus of 3.5 percent of
\nGDP through 2022. The required primary surplus will decline after 2022, but
\nwill average 2.2 percent a year until 2060. Debt relief by European creditors
\nwill be tied to the achievement of these surpluses.<\/p>\n
\n2015 been an advocate of Greek debt relief, as long as Greece pays back the
\ndebt it owes to the IMF. The IMF, which not so long ago insisted on a 4.5
\npercent of GDP surplus, now emphasizes that maintaining even a 3.5 percent of
\nGDP surplus requires the Greek government to \u201cseverely compress\u201d investment in the
\ncountry\u2019s future.<\/p>\n
\ndoes attempt to maintain the European primary surplus targets, those surpluses
\nwill help pay down debt immediately, but because economic growth will fall, the
\ndebt burden, in the IMF\u2019s words, will \u201cfollow an explosive path over the longer
\nterm.\u201d Conclusion: Greece needs substantial debt relief now along with more
\nmodest primary surplus and GDP growth targets. Conclusion:
\nGreece needs substantial debt relief now along with more modest primary surplus
\nand GDP growth targets.<\/p>\n
\nIMF says it \u201chas consistently argued that Greece can reasonably be expected to
\nsustain a long-run primary surplus of no more than 1.5 percent of GDP and
\nannual real GDP growth of around 1 percent, and that even achieving these
\noutcomes will require Greece to undertake profound structural reform over time.\u201d\n<\/p>\n
\nstick by my earlier insistence that the Greek primary surplus be no more than
\n0.5 percent of GDP. In a brilliant new paper, two IMF
\neconomists provide extensive documentation of what has long been known:
\nextended periods of economic stagnation leave the economy deeply weakened,
\nleading to \u201cpermanent output losses.\u201d <\/p>\n
\nof such an analysis. For nearly a decade, Greece has cut back on investment in
\nhuman and physical capital. But there is more. The Greek population is rapidly
\naging. Between 2020 and 2060, Greece\u2019s working-age population will decline by
\n35 percent! Meanwhile, discouraged by bleak prospects at home, the best and
\nbrightest are leaving to seek their fortunes elsewhere. Left without its best people,
\nthe traditionally low Greek productivity growth could fall to abysmally low
\nrates. Fiscal pressures will increase as fewer working-age people support the
\nelderly, which means that the best people will continue to leave. Greece needs a
\nMarshall Plan-style investment program to reverse this treacherous economic
\ndescent. \u00a0\u00a0\u00a0\u00a0 <\/p>\nWho
\nis accountable to the people of Greece?<\/strong><\/h2>\n
\nessay not to point out the repeated failures of European and IMF policymakers
\nto learn from their mistakes. That story is generally known. For the IMF, its
\nown Internal Evaluation Office has just produced another damning report. Rather, I
\nhave highlighted and emphasized that key decision makers were made well aware
\nof the \u201cmistakes\u201d they were committing before<\/em>
\nthey made their decisions. They, however, felt free to disregard any advice or evidence
\nthat did not suit their purpose\u2014and they defined their purpose purely as the
\nprotection of what they saw as their own self-interest.<\/p>\n
\neurozone, despite soothing words like \u201csolidarity,\u201d creates vast imbalances in
\neconomic power. Those enjoying the upper hand have no reason to explain their
\nactions. It is always \u201ctake it or leave it,\u201d \u201cit is not on the table,\u201d or
\n\u201celections don\u2019t change anything.\u201d<\/p>\n
\nnot a story of unfortunate technocratic errors. And it is not just about what
\nwent wrong in Greece, grim though that is. Rather, it is about a colossal
\nfailure of accountability in international governance. Mechanisms of
\ninternational governance are presumed to rely on benign, technically sound decision-making
\nbodies. That presumption, however, is far removed from reality. Politics
\noperates unchecked in the rarified technocratic realm within which
\ninternational actors operate. And since the international media are deeply
\nbeholden to the prominent and glamorous international actors, all contrary
\nvoices are caricatured and dismissed. The Greek
\nstory\u2026 is about a colossal failure of accountability in international
\ngovernance.<\/p>\n
\npinnacle of international governance. More so than any other international agency,
\nthe IMF, with its command over vast resources at moments of raging financial
\ncrises, exercises an almost mystical authority. Given the grievous consequences
\nof undermining an IMF rescue operation, the IMF is almost always insulated from
\npublic criticism while the crisis is ongoing. And the IMF dutifully issues mea culpas<\/em>, which \u2013 more than in other
\nbureaucratic organizations \u2013 are candid documents. But here is the rub: the IMF
\ncommits the same errors again and again. In the Greek program, the errors were
\nrepeated within the course of the long operation even though the evidence was
\nthere to behold.<\/p>\n
\nthe delusional austerity required by the IMF and European lenders in Greece, it
\nis only right that the IMF forgive Greek debt. Not just to compensate Greek
\ncitizens but equally to hold itself accountable and, hopefully, prevent such
\ngross negligence in the future. Greece still owes the IMF $9 billion. The
\namount to be forgiven is, therefore, small in relation to total Greek debt but
\nis sizeable enough to acknowledge the IMF\u2019s accountability.<\/p>\n
\nwill require the concurrence of its Board, and European authorities could
\nassemble a coalition to nix the idea. But at least the Europeans will be forced
\nto defend their position before their international peers. Perhaps, European
\ngovernments will be shamed into more rapid debt forgiveness, which would allow the
\nGreek government greater autonomy in decision-making.<\/p>\n
\npromise was that joining the European Community in 1981 would safeguard their fragile
\ndemocracy. We will never know what might otherwise have happened. Mercifully,
\nGreece has not returned to dictatorship. That, however, can be small
\nconsolation to Greek citizens who have suffered decades of indignity inflicted first
\nby their own leaders and then more insidiously by European politicians and
\ntechnocrats in Berlin, Brussels, Frankfurt, and Washington.<\/p>\n
\nof the twentieth century, colonialism meant occupation, like British rule of
\nIndia. Over the decades, that form of colonialism ebbed worldwide. It was soon
\nreplaced, however, by a creeping economic colonialism, justified as necessary
\nto harness the benefits of integration. Powerful corporations and nations
\ndictated an increasingly wider range of economic policies to weaker countries.
\nThe European handling of the Greek crisis takes economic colonialism to a twenty-first-century
\nhigh-water mark. <\/p>\n
\nlifetime, the Greek parliament will continue to rubber stamp decisions made in
\nBerlin, Frankfurt, and Brussels. Greeks will continue to live in a colony with
\ntheir economic life administered by the European Union. The likes of French
\npresident Emmanuel Macron and his admirers will continue to sing the virtues of
\nan idealistic \u201cEuropean sovereignty.\u201d That the
\neuro, touted as essential to overcome the memories of Europe\u2019s disastrous wars,
\nshould lead to modern economic colonialism is shocking \u2013 but to those who have
\nfollowed the history of this project, it should not be a surprise.<\/p>\n
\nheavily on the author\u2019s book, EuroTragedy:
\nA Drama in Nine Acts<\/em>, to reflect on recent developments.]<\/p>\n","protected":false},"excerpt":{"rendered":"