IMF admits euro problems and apologises for the immolation of Greece

http://www.telegraph.co.uk/business/2016/07/28/imf-admits-disastrous-love-affair-with-euro-apologises-for-the-i/

by randomname2 • 10 years ago

102 45 10 years ago

telegraph.co.uk

PaulHoule• 10 years ago

After brexit the EU has to prove that it is not a lights on and nobody home situation.

Given that "brexit" covers a whole range of incompatible outcomes, some of which are unpalatable to interested parties such as Scotland, Northern Ireland and the people who voted for Brexit; so does Britain.

keithpeter5• 10 years ago

Westminster parliament is responding to the will of the people as expressed through the referendum. We shall what form the response takes over the next few months (Autumn statement will be a significant marker - there will be some economic data based on actual events then not sentiment or opinion surveys) and I'm sure the various political groupings will have plenty to say.

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.

fsloth• 10 years ago

Uh, no, EU is very much concerned with day to day operation of its member countries. It's just incompetent to react to any extrnal stimuli not coming out of its own bureaucracy.

tomelders2• 10 years ago

To be fair, people do keep sending anti-EU MEP's to the EU Parliament, who are incentivised to be as disruptive as possible. Their entire raison d'etre is the total annihilation of the European project and they represent 1 third of MEPs. And none of them seem to have an alternative. They just want the EU gone.

Let's clarify that the situation is nor entirely the doing of pro-EU MEP incompetence. There are powerful forces at work.

AnimalMuppet• 10 years ago

This isn't about the EU. This is about the EZ - the Euro Zone, the countries that use the Euro, which is not all the countries in the EU. Only 19 of the 28 EU countries use the Euro.

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.)

LeifCarrotson• 10 years ago

Actual title: IMF admits disastrous love affair with the euro and apologises for the immolation of Greece

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".

travmatt• 10 years ago

Hands down, the best bit of hyperbole during the EU debacle was when Greece's Finance Minister called the austerity measures 'financial waterboarding'.

forgotpwtomain• 10 years ago

Hands down, the best bit of hyperbole during the EU debacle was when Greece's Finance Minister called the austerity measures 'financial waterboarding'.

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.

smallnamespace• 10 years ago

Would you accept the literal double or triple decimation of their economy as a substitute for 'immolation'?

kyriakos• 10 years ago

How about they do something to help Greece then since they are partly responsible for the mistake?

at-fates-hands• 10 years ago

Honestly a lot of this should be on Greece.

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.

keithpeter5• 10 years ago

For every borrower, there is a lender.

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?

the-dude• 10 years ago

Germany and France were quite happy to take Greeks money for VWs, BMWs etc.

crdoconnor• 10 years ago

"Honestly a lot of this should be on Greece.

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.

abakker• 10 years ago

It seems reasonable to me that the major burden fall on the lenders. After all, they are the ones tasked with due diligence, credit rating, etc.

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.

georgeecollins2• 10 years ago

Respectfully disagree: An important reason why they lost competitiveness is that they shared a currency with Germany, which worked well for Germany in terms of trade.

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.

keithpeter5• 10 years ago

Yanis Varoufakis wrote And the weak suffer what they must to explain the impact of austerity policies on Greece. He was (briefly) the finance minister in one of the Greek governments that had to manage this transfer of debt.

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?

pjmlp• 10 years ago

They don't.

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.

randomname2• 10 years ago

He also commented on this piece at https://yanisvaroufakis.eu/2016/07/29/the-imf-confesses-it-i...

    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

This week began with a debate in Greek Parliament called by the Official Opposition (the troika’s main, but not only, domestic cheerleaders) for the purposes of, eventually, indicting me for daring to counter the troika while minister of finance in the first six months of 2015. The troika who had staged a bank run before I moved into the ministry, who had threatened me with bank closures three days after I assumed the ministry, and who proceeded to close down our banks, now moved to charge me with… bank closures and capital controls. Like a common bully, the troika proved immensely keen to blame its victims, and to violate and vilify anyone who dares resist its thuggery.

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?

In sum, an urgent apology is due to the Greek people, not just by the IMF but also by the ECB and the Commission whose officials were egging the IMF on with the fiscal waterboarding of Greece. But an apology and a collective mea culpa from the troika is woefully inadequate. It needs to be followed up by the immediate dismissal of at least three functionaries.

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.”

keithpeter5• 10 years ago

Thanks for posting the text.

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?

summarite2• 10 years ago

As a centre left I very much like his rhetorics and thinking, but you have to be extremely careful to take any of this at face value. I was not immediately involved but close enough and involved enough to the action to read and discuss these topics at least 1-2 hours a day over the course of late 2010-2014, so I would still not consider myself an expert, but I do have a rather good feel for how the discussions moved and changed.

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...

yequalsx• 10 years ago

What I don't understand about reactions to Greece's profligate borrowing is that I rarely see criticisms of the lender. Borrowing is a 2 party interaction and both parties bear responsibility. The so called bailouts of Greece have been nothing more than bailouts of German and French banks. All the while putting the suffering on Greeks and not anyone else. The best option for Greece would have been to leave the EU in 2008.

golemotron• 10 years ago

I'm not sure why Merkel is still in office. She's been behind most of that policy, along with the current immigration crisis, and the policies that Brexit was a rebellion against.

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.

georgeecollins2• 10 years ago

I think because the flaws with the Euro that have been very disadvantageous for Greece are for the same reason very advantageous for Germany. Germany gets to have a big account surplus with a relatively devalued currency.

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.

detaro• 10 years ago

She is still in office because she hasn't done that many unpopular things, especially in her first 2 terms. If anything, she is as seen as to inactive, but as long as the status quo wasn't too bad... And internally, many see her having a lot of influence on the EU as good.

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.

crd4tn4jky• 10 years ago

German quality of life is the best it's been since unification, why would Germans want to get rid of her?

osullivj• 10 years ago

Yes. The treasury depts in those French and German banks thought they were being smart buying Greek debt, because they got another 50 or 100bps from Greek euro govies as opposed to German, and they were both AAA. There's a reason you're getting those extra beeps! Because you're taking more risk! But in the end those treasury dept investors were made good by the ECB, as though they'd taken no risk at all. This was scandalous and an abuse of the ECB as an institution by the French and German govts. I voted remain on 23 June, but this kind of thing almost made me vote for Brexit.

stuaxo• 10 years ago

Same here wrt to voting remain.

BenoitEssiambre• 10 years ago

A properly managed currency could allow for Greece's labor and investment market gridlock to suddenly resolve itself putting a large part of the unemployed back to work.

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.

Lidador• 10 years ago

Fake news. It is as simple as that.

IMF admits euro problems and apologises for the immolation of Greece

Related Stories