IMF admits euro problems and apologises for the immolation of Greece
telegraph.co.uk
telegraph.co.uk
Ostensibly, Germany is a democracy, but she's had the chancellorship for 10 years and she uses her position to be the EU's de facto leader. There don't appear to be term limits.
She may be doing the wrong thing for EU, but the right thing for Germany. In the long run perhaps the right thing for EU is the right thing for Germany, but I don't think German voters see it that way right now.
The general opinion is not a fan of "Mommy Merkel", but it hasn't been enough to propel the actual alternatives from the corners to a position where they can't be ignored, especially since right now the two largest parties (Merkels CDU and the SPD) support Merkels government together. Traditionally they'd prefer partnering with a smaller party, but their preferred coalitions didn't work out. The alternative combinations that would have had a majority are not seen as viable (yet).
And sorry, this isn't great for change, but doesn't make Germany non-democratic. Other possible governments after the last elections would have been more interesting, but I'm not sure if they would have represented the votes better.
Right now it seems like opinions drift away from Merkel in both directions, so it'll be interesting what happens next year. Election campaigns haven't really started yet, so it's hard to judge how the large parties are going to position themselves. SPD has to do something to break out from Merkel, or work another 4 years with her.
Respectfully suggest reading the above alongside Timothy Geithner's Stress Test for an alternative approach.
The basic issue now is how do they get the Greek economy (and by extension the Spanish and Portuguese economies) back into something like stability?
The first thing EU has done as soon as Portugal and Spain went left on the last elections, was to show who's the boss with the new planned sanctions.
TIME FOR RESIGNATIONS AT THE IMF, THE ECB & THE COMMISSION
TIME FOR AN APOLOGY TO THE PEOPLE OF GREECE
TIME FOR A POLICY U-TURN, BEGINNING WITH IMMEDIATE DEBT RELIEF, THE END OF AUSTERITY & THE CESSATION OF FIRE SALES
TIME FOR THE RESTORATION OF GREEK DEMOCRACY
My reaction to the troika’s charges, and threat of being pulled up in front of a judicial inquiry , was simple: “Bring it on!” “I shall face you”, I challenged them “in any forum you want: in an amphitheatre, a TV station, even a court room!” In the end, they chickened out and the parliamentary motion was defeated as some of them (a small party usually fully in troika’s clasps) strategically voted against.
And then, to complete this week’s drubbing of the troika, the report by the IMF’s Independent Evaluation Office (IEO) saw the light of day. It is a brutal assessment, leaving no room for doubt about the vulgar economics and the gunboat diplomacy employed by the troika. It puts the IMF, the ECB and the Commission in a tight spot: Either restore a modicum of legitimacy by owning up and firing the officials most responsible or do nothing, thus turbocharging the discontent that European citizens feel toward the EU, accelerating the EU’s deconstruction.
While I was in the ministry, negotiating with such folks, the troika-friendly (or should I say troika-dependent) press was arguing that I am not fit to conduct these negotiations because I had dared insinuate that, from 2010 to 2014, the IMF, the ECB and the Commission had been fiscally waterboarding Greece, causing an unnecessary Great Depression as a result of their thuggish imposition of macroeconomically incompetent policies. The establishment press were claiming that a finance minister of a small, bankrupt nation which is being waterboarded by the high and mighty troika functionaries cannot afford to say, in public or in private, that his small, bankrupt nation was being waterboarded.
My response was that we had tried silence and obedience from 2010 to 2014. The result? A loss of 28% of national income and grapes of wrath that were “…filling and growing heavy, growing heavy for the vintage”. Thus, it was time to put to the troika moderate, rational counter-proposals while refusing to continue to acquiesce to their pretend-and-extend tactics. It was a stance that I was never forgiven for.
A year after the troika succeeded in having me ejected from Greece’s government, by prevailing upon Alexis Tsipras to capitulate to them against the wishes of 62% of Greece’s voters, the IMF’s ‘internal affairs’ is now confirming that my stance was utterly justified, rather than mistaken or undiplomatic. Ambrose Evans-Pritchard, in his 29th July Telegraph article, had this to say about the IMF’s IEO report:
A sub-report on the Greek saga said the country was forced to go through a staggering squeeze, equal to 11pc of GDP over the first three years. This set off a self-feeding downward spiral. The worse it became, the more Greece was forced cut – what ex-finance minister Yanis Varoufakis called “fiscal water-boarding”. (See below for more pertinent quotations from Evans-Pritchard)
The question now is: What next?
What good is it to receive a mea culpa if the policies imposed on the Greek government are the same ones that the mea culpa was issued for?
What good is it to have a mea culpa if those officials who imposed such disastrous, inhuman policies remain on board and are, in fact, promoted for their gross incompetence?
First on the list is Mr Poul Thomsen – the original IMF Greek Mission Chief whose great failure (according to the IMF’s own reports never before had a mission chief presided over a greater macroeconomic disaster) led to his promotion to the IMF’s European Chief status. A close second spot in this list is Mr Thomas Wieser, the chair of the EuroWorkingGroup who has been part of every policy and every coup that resulted in Greece’s immolation and Europe’s ignominy, hopefully to be joined into retirement by Mr Declan Costello, whose fingerprints are all over the instruments of fiscal waterboarding. And, lastly, a gentleman that my Irish friends know only too well, Mr Klaus Masuch of the ECB.
Finally, and most importantly, the apology and the dismissals will count for nothing if they are not followed by a complete U-turn over macroeconomic, fiscal and reform policies for Greece and beyond.
Is any of this going to happen? Or will the IMF’s IEO report light up the sky fleetingly, to be forgotten soon? The omens are pointing to the latter. In which case, the EU’s chances of regaining the confidence of its citizens, chances that are already too slim, will run through our leaders’ fingers like thin, white sand. FURTHER QUOTES FROM EVANS-PRITCHARD
“The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde. It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way EU insiders used the Fund to rescue their own rich currency union and banking system.”
“While the Fund’s actions were understandable in the white heat of the crisis, the harsh truth is that the bail-out sacrificed Greece in a “holding action” to save the euro and north European banks. Greece endured the traditional IMF shock of austerity, without the offsetting IMF cure of debt relief and devaluation to restore viability.”
“The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory.” "“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located"IEO report
It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking break-down in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.”
Compare Varoufakis' experience with the observations of Timothy Geithner in his book Stress Test as I mentioned somewhere up the tree. His book is mainly about US but his observations of the process in Europe (middle chapters) reach a similar conclusion regarding the wisdom of the policy, albeit expressed in less polemical language.
Brexit sidenote: Did you notice how the Bank of England simply guaranteed a huge amount of money to cover loans more or less the day of the result?
The truth is, there was at the time no attractive option. For too long the Eurozone countries' governments delayed taking a hard decision (and so did Greece btw), and if you think back to the discussions and insights of the day that was maybe not the ideal but usually the most realistic, feasible and often also the most sure approach. The problem was that this went on too long, more and more intermediate measures were taken to try and counter the crisis, with billions given to Greece and many more promised if needed. Each time this involvement got bigger and chickening out less feasible . Then the Eurozone governments made a huge commitment and let go of probably 2/3 of their demands (which were mostly sound "stop spending and finally make sure you get all the money in that you sold theoretically be getting, i.e. fight tax evasion, etc) and finally things seemed to calm down for a few short months. Prospects looked good, Greece was sorting out some of the mess the last 8 or so governments had created.
THEN, after years already of this torment and depending on your calculation somewhere from 50 bn up to 400 bn Euro being given to Greece, syriza, which was the absolute extreme left any party across the EU could be, got elected. They had campaigned with posters of Merkel with swastikas and Germany's finance minister as Hitler. And they, a party that in the past had never been >5℅ or so, got the top job and this fringe far left economist named varoufakis became finance minister and lead negotiator for Greece.
The election campaign was nerve wrecking and threw the country into chaos, the result even more. By the time they took office the gains of confidence etc had already disappeared completely, ratings for anything Greek kept spiralling down and bad news came from Spain, Portugal and Italy.
Varoufakis mostly spent his time giving insulting speeches and interviews. Then he went to the finance minister meetings, said no to everything and kept insulting and lecturing them. This is not an exaggeration. His party went back on a huge part of the agreement that had bought Greece billions in aid. Eg they started hiring huge amounts of officials, reverted firings, went back on the promise to sort out their probably messiest pensions scheme in the world, etc. All that being in direct contradiction to Greece's signed and agreed terms.
And then they started negotiating again. The third or fourth deal, and each time Greece failed uphold it's side of the bargain but got billions. Hard bargaining while things kept deteriorating. Some rough deal is agreed while the Greek government keeps lying about the demands by the other countries. Greece's government announced a referendum with a very weird phrasing as bargaining tactic and campaigned for the people to vote against the EU's new (and again much lightened) conditions. The vote was against (!) the new agreement. And three days later, after pretty much three days of finance ministers and leaders battling in meeting rooms, Greece signed the agreement. And again got billions. Varoufakis was sacked as he immediately started criticising everything again.
Varoufakis, personally and with the rest of his party, has probably cost Greece at least 5℅ of its GDP. His solutions sound great in theory but are impossible in practice - either because they are just thought experiments of "what could have been", or because they just demand things from the other side (in particular the Germans) while promising little in return. You have to also remember that Greece caused this whole mess themselves. They faked statistics just to get into the Eurozone and continued to do so for a decade. And the one honest government that revealed it and generally started sorting out decades of overspending and cronyism got punished at the polls to a degree hard to imagine. In particular the Germans are very unhappy with the way they have been branded for trying to save the union while trying to get the Greeks to, if they are not able to be accountable to themselves, at least be made accountable to the countries loaning them billions.
This was not about saving German and French banks. That was one worry, certainly, but this whole effort was an attempt to save the EU and the Eurozone and all of Europe from doomsday. Maybe Greece could have exited the Eurozone without too much pain. Or maybe all Greek citizens would have lost their savings, all banks been obliterated, the economy completely destroyed and the country thrown down to a developing country level. The effects for the remainder of the EU were equally unpredictable. No one knows today and no one could have known then, claiming anything else is simply dishonest. And certainly no one dared to make this wager...
That's a bit hyperbolic; it's not even the most left-wing party in the Parliament of the Hellenes -- that title should go to KKE, the Communist Party of Greece, which has 15 deputies. There are minor parties even to the left of them (e.g. ΑΝΤ.ΑΡ.ΣΥ.Α, the Anticapitalist Left Cooperation for the Overthrow and Front of the anticapitalist, revolutionary, communist left and radical ecology), which holds 1-1.5% of the regional governmental seats across Greece.
SYRIZA sits with the same European Parliament grouping as Die Linke, which is the fourth largest party in Germany, holding 10% of the seats in the Bundestag. It's difficult to say that SYRIZA is tremendously more left wing than Die Linke is.
They're certainly less left-wing than Enhedslisten, the Danish Red-Green Alliance, which propped up a social democrat government in the Danish parliament from 2011-2015.
There are plenty of Marxist-Leninist and Trotskyist parties in various national parliaments, and more in regional parliaments. An example is the Partido Communisto Português, which has about 6% of the seats in the Assembly of the Republic and a bit more than 10% of the seats in local governments across Portugal. There's even a few elected positions held the Maoist Workers' Party of Belgium. SYRIZA is not THAT far to the left!
It's nice that you fixed "disastrous love affair with the euro" to read "euro problems", but there's also plenty of unnecessary hyperbole in "immolation".
Can you explain how this is 'hyperbole'[0] ? It's used in a single phrase 'financial waterboarding' which makes it symbolic or metaphorical, unless you are saying this is an exaggeration of Greece's economic problems, in which case I would like to know in which way you think they are exaggerated? Would it need to be 1921 Berlin for it to be 'financial waterboarding' ?
[0] exaggerated statements or claims not meant to be taken literally.
See also my other comment in this thread.
They racked up huge debts while losing their competitiveness in the global market. This led to slower growth. Add in attempts to hide how much they were really in debt and you have a recipe for disaster.
This was compounded by the fact that since they relied on the Euro, they couldn't just print their way out this situation like the US does all the time. Instead, they got caught with their pants down and had no alternative but to own up and take severe measures to right the ship.
Was it not the case that banks in Northern Europe saw an opportunity (common currency, diverse interest rates, and countries with historically very low personal borrowing) and went for it?
They racked up huge debts while losing their competitiveness in the global market. This led to slower growth. Add in attempts to hide how much they were really in debt and you have a recipe for disaster."
The Eurozone was fully aware of, and indeed, tacitly endorsed the trick Greece played with Goldman Sachs in order to join the Eurozone. It was on the front page of the Times at the time when it happened.
The Greek leaders behind this are gone (but not punished). The Eurozone leaders behind this are still in power. The weak and powerless in Greece are being punished for their crimes. Many people think this is justice.
I can ask my bank for a $100million loan. If they judge me worth of that, and then I fail to pay, yes, it is my fault for losing the money, but their fault for misjudging the risk. The lender has the majority of the power in the relationship until the loan is given, so it is in their court to make sure that they do their research.
It appears that the crux of this article is that the IMF didn't do the research, or did it wrong, and badly misjudged many risks and solutions. The IMF had reasonably good information about the situation in Greece, and still didn't see the warning signs.
Provided I'm given the right to direct their, their children's, and their children's children's labor towards repaying me.
And how is bending a government towards repayment at all costs different than enslavement of its citizens? Except in this case the master happened to be incompetent enough that they made their own repayment less likely.
Meanwhile Greece is unable and / or unwilling to meet it's Eurozone obligations.
The only real solution it to toss Greece out, but negotiate a smooth transition to a new drachma. Convert all existing debt to drachmas. Greece can deal with the outstanding debt by devaluing their currency.
However they'll have to choose between letting pensions see their purchasing power decline, or finally cracking down on tax cheats.
But people have a strange moral attachment to the EU / Euro. So it won't happen.
Would that include the debt from northern European banks already offloaded onto them? Because that seems like an equally terrible deal.
"We're going to bail you out with a loan, the balance goes to your creditors, you're responsible for repayment, and everyone is pissed at you because we told them we were giving you cash."
You can make the moral arguments like "they shouldn't have.." but the truth is they are an institution not an individual. They should suffer for taking loans, but so should the institutions that offered them that new better.
My point is that the debt transfer from private banks in predominantly Germany to the Greek state appears to have been a purely bureaucratic policy designed to prop up the Euro.
Disclaimer: I actually voted remain on the balance of practicalities.
As a matter of common sense, you can't have a referendum on a word with no meaning.
Or rather you can, but the result is guaranteed to be a disaster. When there is no definition everyone agrees on, the only possible outcome is anger and disillusion because some very significant proportion of the population will be disappointed.
And even if everyone in the UK agreed on a practical definition - which they very much don't - the EU might not agree to it in negotiations.
The entire business was utterly dishonest.
There's a huge difference between 'Do you want to leave the EU?" - which is a meaningless catch-all promise that covers all possible and impossible hopes - and "Do you want to leave the EU under these specific terms and conditions?"
The Westminster parliament(1) will now arrive at a series of policies to embody that choice and those policies will have to be negotiated through a long and complex process with the various EU institutions concerned. What emerges from that process will probably not fit anyone's conception of what they were voting for. As a (marginal, 5.5/10) remain voter, I would be inclined to point out that if you vote for radical change, radical change is what you get!
I'm pretty sure that the Westminster government(1) will seek a mandate for their choice through a general election.
(1) I'm referring to the Westminster parliament and government here as there are of course huge issues with the position of Scotland (which voted very heavily in favour of 'remain') and of Northern Ireland (which also voted less heavily in favour of remain, and which also has the added complexity arising from the Ulster Agreement, and the Ireland Act / Common Travel Area). The devolved assemblies in Scotland/NI will be fighting their corner and trying to see what they can get. Not sure about Gibraltar yet.
Yes, it's like voting for Trump, you have voted against "the system" and you will get ... something else. it will change, to something unknown. You might end up not liking it much.
There is certainly a huge space of possible strategies to take, but that's always the case with any political action. The UK government is elected to take such decisions on our behalf, with various oversight/transparency/legal conditions attached, so that's what should happen. I don't see how this is any different from a goal like "increase Britain's GDP"; there are many ways to do it, huge levels of disagreement, the elected government will choose a strategy they think is best for themselves. The threat of regular elections is designed to align the government's selfish choice more closely with that of the people; universal education is designed to align the choice of the people more closely with the will of the people.
That's a fairly weak statement; it holds true when all of the options are varying degrees of terrible.
Let's clarify that the situation is nor entirely the doing of pro-EU MEP incompetence. There are powerful forces at work.
And this isn't even really about the EZ; it's about the IMF. (About the IMF trying to fix the problems caused by the Euro, but still about the IMF.)
The type of austerity that the euro group wants leads to disinvestment. It is like forcing a person to sell his or her tools and equipment to make this year's debt payments. No longer being able to work productively anymore without tools, how is that person supposed to make next year's payments?
The ECB has prevented Greece and all economically disadvantaged regions of Europe from getting the investment they need to work and get out of their morass. At this point a considerable part of the debt is a direct result of perennial monetary strangulation and not caused by the indebted themselves.
Some people may be afraid that allowing sufficient funds for investment into Greece may result in the money being diverted into short term spending instead of into long term sustainable investment. To reuse the metaphor, the lender is afraid the borrower will not buy tools with the money and work but instead buy a vacation in Santorini. It is somewhat a valid concern but then if there is this much distrust from other members of the eurozone that people in Greece are not even given the means to work, there is zero reason to continue the relationship and Greece should default and break off.
The fact that unemployment is widespread in Europe, not just in Greece tells us that the main source of problems is the damaging monetary situation caused by the ECB, not greek laziness. Greece has already achieved a primary surplus, they went through a huge amount of pain to correct their finances. And they did it while the ECB was continuously throwing sand in their gears, keeping inflation too low and real interest rates above a rate that gets Europe to an acceptable level of employment. This disproportionately affects economically disadvantaged regions.
Monetary policy in Europe is run so that only the areas that have natural economic advantages can prosper while investment is sucked out of weaker regions and turned into idle excess fiat. If Greece, through gargantuan efforts managed to be so productive as to offset their natural disadvantage and the European economy started heating up, the ECB would tighten yet again and vacuum investment out of the next weakest region causing a similar crisis there.
Only when the ECB will have produced an acceptable level of unemployment in the eurozone will you really be able to start blaming individual countries for their economic woes. After the reforms in Greece, if the ECB did an half decent job, Greece might well have been able to pay the entirety of their debt without too much pain, and if they still didn't, then you would have had a case for corrective austerity there. But you cannot have government austerity at the same time as monetary over tightness (read private sector suffocation). That is just mathematical nonsense.
To make another darker metaphor, if there is so much distrust and resentment toward the Greeks that people think they should be made into slaves to pay for their debt, even then, it would make no sense to refuse to provide the tools and infrastructure to enable them to work. What good are non-working slaves? Of course, the relationship should break off well before we get to this extreme. Sometimes it seems like Germany doesn't mind moving towards this nonsensical non-working slaves scenario.
The only real solution will have to start with the ECB moving to a higher or better inflation target that doesn't choke their continent's economy and that allows weaker members to labor towards recovery.