Three years ago, then Prime Minister George Papandreou stood on Kastelorizo’s harbor as the Aegean glistened in the background and children yelped with joy. The ensuing period has proved anything but sun-kissed child’s play for Greece. The appeal made by Papandreou to the eurozone and the International Monetary Fund that day has set the tone for almost everything that has happened in Greece over the past three years. Where it will lead is far from clear.
Even though the European Commission, the European Central Bank and the IMF make up the troika of lenders that have provided Greece with some 200 billion euros in bailout funding during the last 36 months, the Washington-based organization’s role has grabbed the attention of most Greeks. Even now, April 23, 2010 is referred to by many as the day Papandreou “sent Greece to the IMF.” Even though the Fund has provided only a fraction of the loans disbursed so far, its actions often come under the greatest scrutiny. Although there has been a growing realization that some of Greece’s partners in the eurozone and the ECB have been behind some of the troika’s toughest demands, the IMF continues to be a regular target for critics.
The problem is that these often indiscriminate attacks, dismissing the IMF as a Trojan horse for neoliberalism, mean that proper analysis of the troika’s three elements is pushed aside. In this fog, it has become difficult to work out where there are grounds for genuine criticism of the IMF. In this respect, an op-ed by Mohamed El-Erian, the CEO of PIMCO investment firm, on the Fund’s shortcomings is timely and extremely useful.
Posted in Economy, European Union, Greece
Tagged Austerity, Debt restructuring, European Central Bank, European Commission, George Papandreou, Greece, Greek bailout, Greek bonds, Greek crisis, Greek debt, IMF, International Monetary Fund, reforms, Troika
At a meeting of eurozone finance ministers in February, Greece’s Yannis Stournaras asked a fairly straightforward question: Could the troika explain what, if any, impact the International Monetary Fund’s miscalculation of fiscal multipliers had on the Greek adjustment program?
The question came in the wake of the IMF admitting a few weeks earlier that it had underestimated the recessionary impact that rapid fiscal adjustment would have in the current negative economic climate. The IMF assumed the fiscal multiplier of spending cuts and tax hikes was around 0.5 percent of gross domestic product – in other words, austerity measures equivalent to 1 percent of GDP would produce a 0.5 percent decline in economic activity. Its economists, however, discovered that the real fiscal multiplier was between 0.9 and 1.7 percent of GDP.
In Greece, critics of the bailout saw this as evidence that its austerity formula should be consigned to the rubbish bin. They put considerable pressure on the government to respond to the IMF’s revelation. Fearful of what implications an admission that the program had been built on unsound foundations might have on public opinion, the coalition played down the Fund’s findings.
Bearing this in mind, Stournaras put a rather tame question to Greece’s lenders after admitting to journalists that he could draw no reliable conclusions from the new analysis on the fiscal multipliers provided by the IMF’s chief economist Olivier Blanchard.
The response to Stournaras’s low-key request was a full-on blast from European Economics and Monetary Affairs Commissioner Olli Rehn. So forceful was the response, in fact, that one had to wonder whether the level of protest suggested that Greece might have a serious case.
Posted in Economy, European Union, Greece
Tagged Austerity, Carmen Reinhart, euro, European Commission, eurozone, fiscal multipliers, Greece, Greek bailout, Greek crisis, IMF, International Monetary Fund, Kenneth Rogoff, Olli Rehn
Finance Minister Yannis Stournaras felt compelled last week to call into a TV news show to deny rumors about imminent property tax hikes for Greeks. He argued there had been a lot of “scaremongering” by the media and politicians relating to the creation of a new property tax, which would unify several levies on real estate that currently exist.
Tax has become an increasingly sensitive issue in Greece. As wages shrink and jobs disappear, nobody is looking forward to the prospect of paying more into public coffers. But anxiety has been spurred by the voting of a new tax bill in January, which increased income and corporate tax and scrapped the tax-free threshold with the aim of raising 2.3 billion euros.
Furthermore, a recent international study by KPMG showed that Greeks pay the second-highest effective income tax and social security contributions at 46.5 percent of their income. Given this burden and the slow progress on ensuring that a sizable minority does not consistently get away without paying its share, it is no surprise that the issue of tax raises hackles in Greece each time it enters the public debate.
Posted in Economy, Greece
Tagged cyclically adjusted deficit, ECB, European Central Bank, European Commission, fiscal multipliers, Greece, Greek bailout, Greek economy, IMF, International Monetary Fund, Olivier Blanchard, Recession, Troika
“I hope and want Greece to remain in the eurozone,” German Chancellor Angela Merkel said during her visit to Athens last week, before suggesting that everything – from the next bailout instalment to any possible initiatives to pull the country out of its economic tailspin – were dependant on the content of the soon-to-be published report by the troika.
It was hardly an unqualified endorsement of Greece but was absolutely in keeping with the piecemeal approach Europe’s key decision makers have adopted during this crisis. They’ve hooked Greece up to the IV while they try to find a cure for the illness ailing the whole of the eurozone. As the days roll on, the next drip – the troika review – takes on paramount importance. It has become a matter of life and death. So, it should be of urgent concern to all those involved that at this crucial juncture, the troika’s medical credentials are in serious doubt.
Posted in Economy, Greece
Tagged Austerity, European Central Bank, European Commission, fiscal multipliers, Greece, Greek crisis, International Monetary Fund, Recession, Troika, World Economic Outlook
European Commission President Jose Manuel Barroso was in Athens on Thursday. It was the first visit to Greece by the head of any of the troika elements since the country agreed its first bailout in May 2010. Greece’s isolation within Europe could not be highlighted or summed up in a better way.
Barroso brought kind words of support and messages about growth, which the Greek government will treat as a useful display of solidarity in these difficult and lonely times. But the EC chief’s visit was eclipsed by the presence of the top troika officials in Athens.
Greece’s immediate fate rests in the hands of these three men. The words this trio includes in their review of the Greek program, due by the beginning of September, is likely to determine whether eurozone leaders and the IMF board approve the release of more loan installments.