Greece, The IMF And The Eurogroup: The Nonsense Continues

Greece, The IMF and The Eurogroup: The Nonsense Continues

Introduction

The Eurozone is often discussed as a single entity. It is only a single entity in that all members use the same currency. In fact, the countries have very different economies. This article highlights their differences using Greece as an example and explains why it is heading for a breakup.

Greece

Since 2010, I have been tracking the Greek crisis. It is a story of three entities unwilling to see the big picture and make the compromises necessary to move things forward in a productive way.

a. The Greek Government

Since 2011, Greece has had to agree to a numerous austerity measures resulting in the unemployment rate reaching 28%. Alexis Tsipras and his Syriza Party came into power in 2015 by promising to stop giving into the demands of the IMF and the Eurozone. The following recent quotes from Mr. Yannis Stournaras, the governor of the Central Bank of Greece, provide a sense of the current antagonisms between Greece and the IMF.

Commenting on the findings of the IMF’s most recent review, Stournaras said:

“However, at its present form, it [the IMF review] misses the opportunity to be fair to history since it criticizes everybody else except the IMF. As far as this point is concerned, being Finance Minister between July 2012 and June 2014, I can confirm that during this period:

  • The IMF pressed for more and more parametric fiscal policy (austerity) measures ignoring even its own research regarding the size of fiscal multipliers and tax buoyancy, thus consistently underestimating progress in the reduction of the primary general government deficit;
  • The IMF is partly responsible for delays in closing the 2013 review since it was unjustifiably (given the final outcome) asking for additional parametric fiscal policy measures even when it was more than clear that 2013 fiscal developments were pointing to a primary surplus large over-performance;
  • The IMF insisted on additional recapitalization of banks disregarding the views of the authorities, the Bank of Greece and the European Central Bank, and it turned out that it grossly overestimated capital needs and underestimated the impact to the economy of excess bank capital;
  • The IMF consistently played down the progress on structural reforms, ignoring, among others, OECD’s assessments.”
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