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
The leaders of Greece’s coalition parties are due to meet on Wednesday, a day before the troika returns to Athens to resume its latest inspection of Greek public finances and check on the progress of structural reforms. Reports indicate that among the subjects which will dominate both Wednesday’s talks and subsequent meetings with officials from the European Commission, European Central Bank and International Monetary Fund are the collection of an emergency property tax and installments for unpaid debts to the state.
The talks will take place in the wake of Eurostat figures showing that Greece, for the first time since the crisis began, has the highest unemployment rate (26.4 percent) in the euro area. At the same time, Greece’s leading economic think-tank, IOBE, warned that the current rate of unemployment in this country is unsustainable and that 60 percent of jobless people had been without work for at least 12 months. Also this week, Markit’s PMI showed that manufacturing in Greece, which accounts for almost 15 percent of the economy, continued to fall in March as it has done since September 2009. Meanwhile, the Finance Ministry has reportedly revised this year’s recession figure to 5 percent of GDP from 4.5 percent.
To say that the talks between Greece and the troika will have a touch of the surreal about them given the mauling that the real economy is suffering is probably an understatement.
Posted in Economy, Greece
Tagged Austerity, EU, euro, Greece, Greek bailout, Greek crisis, Greek economy, Greek manufaturing, Greek property tax, Greek taxes, Greek unemployment, IMF, Troika
It’s a measure of the absurd situation that Greece and its lenders have got themselves into that it’s highly doubtful whether there is a single Greek MP or European official that believes the austerity package due to be voted through Parliament around midnight on Wednesday will contribute towards the country’s recovery.
Apart from the dewy-eyed optimists (it would be a shock if there are any of those left), there is unlikely to be anyone who has confidence that the 13.5 billion euros of spending cuts and tax hikes over the next two years will play a part in halting Greece’s incessant decline.
The 2013 budget foresees a primary surplus – the first in over a decade – of 0.4 percent of GDP on the back of the latest measures. While achieving this surplus is one of the milestones on the road to stability, there are serious questions about how it should be achieved. With approximately 9.5 billion euros of measures (equivalent to 4.5 percent of GDP) to be implemented next year, the program of cuts demanded by the troika makes a mockery of assertions by leading economists and even the International Monetary Fund managing director Christine Lagarde that frontloading will end up being destructive, not just counterproductive.
Posted in Economy, European Union, Greece
Tagged Austerity, euro, eurozone, Greece, Greek bailout, Greek crisis, Greek debt, Greek Parliament, International Monetary Fund, Recession, structural reforms
On October 26, I had the privilege of addressing the Chicago Council on Global Affairs. My subject was the Greek crisis: what else? However, I decided it was an opportunity to go beyond the basic account of the woes in Athens and give an informed and attentive audience greater insight into what led Greece to this point.
Unsurprisingly, when talking about Greece we rarely look beyond the last three years but it is of vital importance that we start to appreciate what happened in the lead-up to the crisis. It is time to assess the economic, political and institutional mistakes that were at the heart of the country’s collapse.
This is a favourite topic of discussion between myself and Yiannis Mouzakis and we hope to soon announce a joint project on exactly this subject.
In the meantime, I hope you have the time to read the speech (it’s rather long) and post your comments. Keep in mind that it is an overview and cannot in any way be considered a comprehensive account – there’s only so much you can fit into 25 minutes. The text contains a few paragraphs, mainly on domestic political issues, that I had to cut out of the speech due to time restrictions.
If it suits you better, there is audio of the event available here, courtesy of the Chicago Council on Global Affairs, who I’d like to thank again.
If you prefer to read the speech yourself, then please do so while adopting the voice of an accomplished public speaker (unlike myself) and perhaps throw in a few humurous anecdotes of your own. I’m thinking Peter Ustinov might be good example to have in mind.
Much as it is an honour for me to be speaking at the Chicago Council on Global Affairs today, I’m fully aware that I’m here because of a word – a Greek word – that carries many negative connotations: crisis.
Over the last three years, you won’t have read a newspaper article, seen a TV report or listened to a radio program that referred to Greece and didn’t use the word “crisis.”
And for good reason too: the problems triggered by the Greek debt crisis have sent the country’s economy into freefall, destabilized its political system and thrown its society into turmoil. Beyond Greek borders, the crisis has threatened to destroy the euro, pull apart the European Union and cause global financial havoc.
Posted in Economy, European Union, Greece, Greek politics
Tagged Austerity, current account, euro, European Union, eurozone, Greece, Greek crisis, Greek economy, Greek politics, International Monetary Fund