Greece and the IMF: Three years of not understanding each other

Illustration by Manos Symeonakis http://xpresspapier.blogspot.gr/

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.

Advertisement

Giving Greece a chance, not just a tranche

It is a sad indictment of the manner in which the Greek crisis has been handled by all sides that for probably the first time since the economic unravelling began about three years ago, moderates in Athens as well as other eurozone capitals looked at each other in the wake of another inconclusive Eurogroup meeting on Wednesday and wondered: “Why did we ever get involved with these guys?”

The rest of the eurozone’s grievances with Greece – many justified, some the product of stereotyping – have been well documented but the inconclusive 11 hours of discussions between eurozone finance ministers in Brussels this week tipped the balance the other way. It was the turn of level-headed Greeks, fully aware of their own country’s shortcomings, to fume about their euro partners’ footdragging and failings.

Yet, just as it has been unfair for Europeans to have undue expectations of Greece, so it is excessive for Greeks to expect 16 eurozone countries to each easily overcome their national concerns and promptly agree a strategy that would make Greek debt sustainable.

Greece’s debt problem is eminently solvable. How about imminently?

The speed with which the eurozone’s key players reacted to Greece’s coalition government narrowly winning a vote on the latest austerity and reform package was impressive. If they could show the same haste and purpose in addressing the economic capitulation threatening to undermine Greek society and politics, we might be in for better days.

Even before 153 out of 300 Greek MPs had voted in favor of the legislation last Wednesday, which foresees more than 18 billion euros of cuts and tax hikes over the next four years, European Economic and Monetary Affairs Commissioner Olli Rehn admitted that Greek debt was not sustainable but that the most obvious method for tackling this problem, restructuring, was not an option.

A few hours after the vote, having seen the three-party coalition in Athens stagger over the finishing line, German Finance Minister Wolfgang Schaeuble said Greece would not immediately receive the 31.5-billion-euro loan tranche, which it had been expecting since the summer to recapitalize its wheezing banks and moisten the lips of its liquidity-parched market. The eurozone, it seems, has developed a dangerous penchant for self-harm.

PSI: Gift horse or Trojan horse?

Illustration by Manos Symeonakis

Given that Greece struggled for weeks to find just a few billion euros in savings to convince its eurozone partners to grant a second bailout, you’d have thought the wiping out of some 100 billion euros from the country’s debt pile — the largest restructuring the world has seen — would have been greeted with the world’s largest collective sigh of relief. It wasn’t.

The lack of high-fiving and back-slapping on the streets of Athens does not mean the bond swap should be dismissed. After all, it’s perhaps the first time in this crisis that all parties involved accepted that Greece can’t pay its debts and that they needed to do something practical about it.

Will anyone be left standing at the end of Greece’s marathon?

Illustration by Manos Symeonakis

Of all the European leaders, Economic Affairs Commissioner Olli Rehn is perhaps the last you would expect to have a finger on society’s pulse. Yet it was the Finnish technocrat who produced the most apt analogy at the end of an epic Eurogroup session that ended on Tuesday morning with eurozone finance ministers agreeing a new bailout for Greece.

“In the past two years and again this night, I’ve learned that ‘marathon’ is indeed a Greek word,” Rehn told reporters. There seemed to be an exquisite timing to the marathon reference, even though most journalists were too bleary-eyed at that point to appreciate it. Marathon can refer to one of two things: one of the most decisive battles in history, in which the ancient Greeks repelled the threat of the Persians and a disastrous future, or the long-distance race which marks the lung-busting effort of messenger Pheidippides to inform the Athenians of victory over the invading army.