On the eve of Greece agreeing its first EU-IMF bailout in May 2010, the CEO of investment firm PIMCO, Mohamed El-Erian, expressed doubts about the package, what it demanded of Greece and whether the Europeans would be able to manage the process. “This is a daunting challenge,” he wrote in the Financial
Times. “The numbers involved are large and getting larger; the sociopolitical stakes are high and getting higher; and the official sector has yet to prove itself effective at crisis management.”
El-Erian raised the issue of private sector involvement, or PSI, almost two years before it happened and warned the eurozone that it was walking into a potential disaster. “What started out as a public finance issue is quickly turning into a banking problem too; and, what started out as a Greek issue has become a full-blown crisis for Europe,” he wrote.
This week, Bloomberg revealed that PIMCO has been selling the Dutch bonds it was holding. Until now a financial, AAA-rated safe-haven in the eurozone crisis, the Netherlands’ bond yields are edging upward, its coalition is under pressure and “austerity fatigue” is apparently setting in. El-Erian’s warning in May 2010 that the Greek debt crisis would “morph into something much broader” has been proved correct.
Posted in Economy, European Union, Greece
Tagged Enrico Letta, euro, European Central Bank, European Commission, eurozone, Greek bailout, Greek crisis, International Monetary Fund, Mohamed El-Erian, PIMCO, Viviane Reding
“I want my life back, now!” was one of the chants heard at a teachers’ rally on Friday, when they protested against job transfers and sackings in the civil service. It’s been clear over the last three years that our daily comforts, as small as they may have been, are slipping away one by one and being replaced by uncertainty or, even worse, dead ends. To be alarmed by this is only human. We shouldn’t forget, though, that for some Greeks the wish of having their life back is not a slogan but the basis for their epitaph.
The death of three employees at the Stadiou Street branch of Marfin Egnatia Bank in central Athens remains one of the most shocking moments of this crisis. Coming on May 5, 2010, shortly after Greece agreed its first bailout agreement with the troika, the arson attack on the bank and the deaths of Angeliki Papathanasopoulou, 32, Vivi Zoulia, 34, and 36-year-old Nondas Tsakalis serve as one of the bookends for this crisis. When the other will arrive, marking the culmination of this exacting period, nobody can be sure.
In the meantime, Greece has to deal with the fallout from its dire situation and the truth is it hasn’t done that particularly well. The fact that the hooded arsonists who smashed the windows of Marfin Bank during an anti-austerity protest and then set fire to the building are still at large is symptomatic of the country’s failure to deal with some of its most obvious problems. That it is unable to provide justice for three of its young people denotes wider failings in caring for this generation. Bright, hardworking and foreign-educated, Papathanasopoulou, Zoulia and Tsakalis had much to offer but Greece, tragically, missed out. It is missing out in a similar way as more young Greeks with similar qualities and who have the skills to be agents of change abandon the country due to a lack of opportunities and eclipsing faith in decision makers.
Grabbing a coffee for 20 cents less doesn’t really sound like the start of an economic recovery but who knows, maybe after this week’s decision to cut value added tax at restaurants and cafes, Greece will soon be measuring out its success with coffee spoons.
Naturally, the government has made the most of the skeptical troika finally giving in on a longstanding Greek demand for VAT in the food service sector to be reduced from 23 to 13 percent. Even so, Prime Minister Antonis Samaras announcing the temporary measure in a televised address was a touch excessive given he only informed the nation that a nightclub drink would soon be about 50 cents cheaper. For the government, though, the symbolism of the reduction is perhaps more important than its economic impact.
Samaras presented it as a personal triumph of persistence. Deputy Prime Minister Evangelos Venizelos said it was a sign that the troika had begun listening to Greece. Indeed, the VAT reduction represents something of a milestone in the Greek bailout program as tax hikes have been the norm and a regular source of much anger over the last three years. It was billed as the first tax cut since the program began, which is not quite accurate. Technically, it was the second as a 15 percent reduction in the emergency property tax introduced in 2011 had been agreed a couple of months earlier. This came after pressure from Democratic Left, which was still part of the coalition at the time. There was no televised address, though.
Posted in Economy, Greece, Greek politics
Tagged Antonis Samaras, Company tax, Greece, Greek bailout, Greek crisis, Greek economy, Hospitality, Restuarants, Tax, Tourism, Troika, VAT
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