The IMF allegedly admitted that, according to the conclusions of a report that was leaked to the Wall Street Journal, significant errors were made in the management of the Greek program, including the violation of many of its core principles over the last three years.
In particular, the WSJ reported in a “strictly confidential” internal IMF document,that the Fund recognizes that it underestimated the negative impact that the prescriptions of austerity would have brought upon the Greek economy. Nevertheless, it notes that the coordinated IMF/ EU response to the crisis bought valuable time so as to limit the negative impact on the rest of the 17 eurozone member states!
Indeed, it especially stresses the need of restructuring the Greek debt. The IMF argues that normally Greece’s debt should have been subject to restructuring through a “haircut” from the program’s inception, however, both the partners of the eurozone, and the then Greek government absolutely refused to contemplate anything to that effect. Here is an abstract of the IMF report:
One way to make the debt outlook more sustainable would have been to attempt to restructure the debt from the beginning. However, PSI was not part of the original program. This was in contrast with the Fund program in Uruguay in 2002 and Jamaica in 2011 where PSI was announced upfront. […] Yet in Greece, on the eve of the program, the authorities dismissed debt restructuring as a “red herring” that was off the table for the Greek government and had not been proposed by the Fund (Papaconstantinou, 2010). In fact, debt restructuring had been considered by the parties to the negotiations but had been ruled out by the euro area. There are a number of reasons for this:
- Some Eurozone partners emphasized moral hazard arguments against restructuring. A rescue package for Greece that incorporated debt restructuring would likely have difficulty being approved, as would be necessary, by all the euro area parliaments.
- Debt restructuring would directly hurt the balance sheets of Greek banks. This would imply a call on the program’s financing that would exceed the amount set aside for bank recapitalization under the HFSF.
- Debt restructuring risked contagion to other members of the Eurozone and potentially another Lehman-type event, yet the EFSF was not yet in place. European banks had large holdings of Greek bonds – but also, and of more concern given the scale of their exposure, had large holdings of the bonds of other European sovereigns that would drop in value were Greek creditors to be bailed in. […]
restructuring off the table, Greece faced two alternatives: default immediately, or move ahead as if debt restructuring could be avoided. The latter strategy was adopted, but in the event, this only served to delay debt restructuring and allowed many private creditors to escape. […]
On the positive side, moving ahead with the Greek program gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy. However, not tackling the public debt problem decisively at the outset or early in the program created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output. An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners. A delayed debt restructuring also provided a window for private creditors to reduce exposures and shift debt into official hands. As seen earlier, this shift occurred on a significant scale and limited the bail-in of creditors when PSI eventually took place, leaving taxpayers and the official sector on the hook.
What is the IMF telling us? Precisely, what we have been saying from the beginning, that the program which the Troika implemented was not driven by a desire to ‘rescue’ Greece – in any possible way that this could be meant – from the excessive public debt that led the country into bankruptcy, but to save the euro and European banks. Indeed, the IMF is pointing its finger at the eurozone saying that it did not even agree to discuss, especially at the beginning of the program, a restructuring of Greece’s debt with a ”haircut” because it would have jeopardized the integrity of the euro and the European banks. And not only that. When the PSI (haircut) finally happened, it was useless, just because the only ones who were helped were the private creditors – i.e. the European banks had managed to sell most of the Greek bonds they were holding and off-load their losses to the taxpayers and the Treasury.
Do we understand what happened? Greece and its people were sacrificed for the euro and the banks. What would have happened if Greece in 2010 had gone to a formal declaration of cessation of payments – what the IMF calls a “default”? European banks would have gone bankrupt and the Euro itself would have crashed under its own weight. And then what consequences would Greece and its people have faced? Simply, Greece would have been unable to borrow from the international capital markets. But without having to service the debt, there would have been no need to do so. Also it would be necessary to revert to a national currency in order to finance the economy. While the bankruptcy of banks would give the possibility – without the loss of savings, which are guaranteed by the state – to write off the majority of private loans and to rebuild the credit system from scratch in order for it to cease to be a huge money sink, as it is today. Consider, which would have been the better solution for the country and its people?
With this report, the IMF tries concurrently, to both shrug off its responsibility for the tragic state of the Greek economy and society, and at the same time, to strengthen its position in the eurozone. Would it have been better if we had had a debt restructuring at the beginning of the program? No, not in the slightest. For the Greek economy which is tied to the euro, a debt restructuring at the beginning, not only would it have saved nothing, but also it would have dramatically worsened the condition of the banks along with the Eurosystem, with the same tragic results. To have a debt restructuring or even a temporary relief from the debt – as in the cases mentioned by the IMF itself of Uruguay and Jamaica – it is essential, before the country embarks on such a venture, to have the monetary freedom to do so. With Greece having both its hands and feet tied to the chariot of the euro and its banking system integrated in the Eurosystem, no debt restructuring would have any different results than the one imposed on the country in 2012.
Always according to the IMF, the report stated, among other things, that:
• The IMF circumvented the rules in order to present the Greek debt as sustainable, and that Greece did not meet three of the four criteria need to qualify for assistance from the Fund.
• Fund was overly optimistic about the prospects of the Greek government returning to market financing and the political capacity to implement the terms of the bailout program.
• The greatest beneficiary of the Greek rescue program of 2010 was not Greece but the wider Eurozone.
• The IMF criticized the delay in restructuring the sizeable Greek debt, which finally took place in March 2012, two years after the original bailout, but nevertheless acknowledges that it was “politically difficult,” for a reduction of the debt to occur any sooner.
• The Fund further acknowledges that its analysis of Greece’s projected economic development was “greatly” flawed.
• The commission has also been strongly criticized for its “tendency to shape political positions by consensus, little success in the application of budgetary rules, and meager experience in crisis management.”
• The Fund had initially predicted that Greece would lose 5.5% of its economy between 2009 and 2012 while the country actually lost 17% of real GDP and the rescue program spoke of an unemployment rate of 15% in 2012 while the actual rate of unemployment rose to 25%.
What would one expect from such a report? An apology by all those who thought that there was no other way but to subject the country to the status of the troika. Of course, the Finance Ministry declined to comment officially on the IMF’s report. Neither, did the former Minister Papaconstantinou, nor did the upstart former Prime Minister Papandreou, both of whom, the IMF states, refused to discuss the option of debt restructuring at the beginning of the crisis. Neither did the “great” Venizelos have anything to say, he who along with Papademos and Samaras set-up the debt restructuring plan together, just to rescue the country’s private creditors and off-load the losses of the “haircut” to the taxpayers and the Treasury.
All of the recent Greek political administrations that imposed the status of the memoranda, loan agreements, the selling off of the country and the impoverishment of the Greek people, had as their primary objective to serve the interests of the euro and the eurozone banks. They preferred to dissolve the country and to exterminate the people, in order to avoid damaging the integrity of the Euro and the European banking cartel. How long will it take us to understand this?
As for the opposition parties, what is there to say? “Every miracle lasts three days,” says the popular adage, and so lasted the purported success story of Mr. Samaras, according to the IMF. Rather than growth there comes a new Memorandum and more stringent measures against the Greek “poor-made” people, as Notis Marias, the parliamentary representative of the Independent Greeks party, commented on the IMF report. There was no mention about the fact that Greece was sacrificed for the Euro. You see, Mr. Notis Marias and the ANEL party of Mr. Kammenos belong purely to the gang of the euro and do not want in any way to highlight the obvious, that the problem starts first and foremost from the fact that Greece has been sacrificed in favor of the eurozone.
And Mr. Milios the “great financial adviser”, and the future – with the help of Washington – Prime Minister Tsipras stressed that “SYRIZA-EKM had stated clearly since 2010, that the program dictated by the Troika would be a dead-end and detrimental to the vast majority of the Greek society. From early on, he had suggested the need for active debt reduction and the replacement of the memoranda by an economic rehabilitation program driven by social needs … The very harsh reality of the recession, unemployment, insecurity, the collapse of the welfare state, the brain drain and the humanitarian crisis are all however much more important issues than the bitter vindication of the original estimates of SYRIZA-EKM.”
Concluding his statement, Mr. Milios emphasizes that “today the democratic overthrow of the Memorandum policy is the only way for the immediate cessation of the downward progress of the society and the country at large. The only solution is the formation of a government of the Left that will immediately proceed to remove the disastrous Memorandum in order for the country to begin a democratic regeneration and productive reconstruction. “
I will not be tempted to comment on what exactly SYRIZA, and above all Mr. Milios himself, correctly predicted. It was he, who at the time of the first bailout of 2010, believed that funding from the Troika would be sufficient to tackle the burden of the debt. It took a whole year for him and his companions to realize that the debt cannot be repaid. Nevertheless, their predictions came out right. In what? In the fact, that they were calling for “the drastic reduction of the debt.” But the real question is, how will the debt be reduced? When did you tell us exactly how the “drastic reduction of debt would happen?” In the way that the IMF suggested for Latin America, or with the European Conference similar to the one in London in 1953? But the European Conference then was to legitimize the occupation of West Germany by the U.S. and NATO. Are you trying to achieve the same today? And how can the debt be “drastically reduced” within the Eurosystem which does not hesitate to sacrifice countries and people in order to preserve the banking cartel? Would you ever tell us, or will you just keep fooling the people?
The only consideration for SYRIZA today is to replace the crumbling polarization of the people of the erstwhile two-party system with the proposal for a “government of the Left” against obviously a “government of the Right.” And so the game of rotation against the people and the country will continue with the people divided between a corrupt Right and an equally corrupt Left.
As for the Communist Party, its press office commented: “The Greek people should not believe the lies of the coalition, neither of the other parties, which supposedly purport that a capitalist recovery will lead to an improvement in the living standards of the people.” In a situation where the Greek economy is sinking abruptly and the whole society is disintegrating, the Communist Party officials are arguing with others about what kind of recovery will come! No mention of the IMF report and the consensus that Greece was sacrificed for the euro. You see, it fits the apologetic nature of the KKE which wants the ruling class of Greece to be on a par with the state monopolistic oligarchy of the Eurozone. A party which is trying very hard to convince us that the recent administrations are not treasonous or collaborators, how could it comment on such a report? Just follow the known policy: complete silence.
Just as it does with the loan agreements, and generally with anything that blatantly betrays the state of occupation and outright colonization which has been imposed upon the country. The leadership of the Communist Party today is committed to rescue the traitors of the country from a massive national liberation movement, a new EAM, the only one capable to unite the populous and to save it from enslavement.
If one carefully reads the report of the IMF, one will find that the estimates about the Greek economy in 2012 have been revised downwards. And so, the forecasts for 2013 become even more untrue and totally unfounded. Thus, for example, the estimate for the recession of 2012 stands at -6.4% in real GDP, a whole -6.0% lower than the initial estimate. The decline in production will ultimately take shape at -7.7% in 2012 and -10.6% in 2013! Investments in the Greek economy are estimated to have finally fallen by 19.2% in 2012 instead of 14.4% that were initially estimated, but for some strange reason, in 2013 they will fall by just 4.0%, while in 2014 will grow magically by 8.4% – a percentage that has not been achieved by the Greek economy even at the time of the preparation for the 2004 Olympics. The total domestic aggregate demand is estimated to have declined in 2012 by 10.4% compared with 8.7% in the initial estimate. And despite the ongoing horizontal drastic slash of income and expenditures, the total domestic aggregate demand is expected to decline in 2013 by only 5.6%, while in 2014 will decline by only -1.1%. How will this miracle happen? In the familiar way: on paper.
Get ready for the worst. And if you have the strength to find your lost dignity and not allow yourself to be fooled by any professional crook politician, then join the ones who from the beginning of the crisis know what they are talking about and what they propose. Join in on the only possible solution: the struggle for national independence and sovereignty of the people in their homeland, unilateral debt relief, an exit from the euro and the EU itself. This is the only proposal that is truly democratic , patriotic and able to unite all the people.
Posted in το Χωνί, 09/06/2013.
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