{"id":7052,"date":"2015-06-05T21:56:04","date_gmt":"2015-06-05T21:56:04","guid":{"rendered":"http:\/\/meeseeks:5080\/blog\/?p=7052"},"modified":"2015-06-05T21:56:04","modified_gmt":"2015-06-05T21:56:04","slug":"oh-cry-the-beloved-country","status":"publish","type":"post","link":"https:\/\/vukutu.com\/blog\/2015\/06\/oh-cry-the-beloved-country\/","title":{"rendered":"Oh cry, the beloved country"},"content":{"rendered":"

The destruction by the Troika of the Greek economy and Greek society that we have witnessed these last five years may have one good outcome: it may bring reform to at least one of the organizations responsible, according to this scathing indictment by Ambrose Evans-Pritchard in the London Telegraph<\/a> today. An excerpt:<\/p>\n

The International Monetary Fund is in very serious trouble. Events have reached a point in Greece where the Fund’s own credibility and long-term survival are at stake.
\nThe Greeks are not withholding a \u20ac300m payment to the IMF because they have run out of money, though they soon will do.
\nFive key players in the radical-Left Syriza movement \u2013 meeting in the Maximus Mansion in Athens yesterday \u2013 took an ice-cold, calculated, and carefully-considered decision not to pay.
\nThey knew exactly what they were doing. The IMF\u2019s Christine Lagarde was caught badly off guard. Staff officials in Washington were stunned.
\nOn one level, the \u201cbundling\u201d of \u20ac1.6bn of payments due to the IMF in June is just a technical shuffle, albeit invoking a procedure last used by Zambia for different reasons in the 1980s. In reality it is a warning shot, and a dangerous escalation for all parties.
\nSyriza\u2019s leaders are letting it be known that they are so angry, and so driven by a sense of injustice, that they may indeed default to the IMF on June 30 and in so doing place the institution in the invidious position of explaining to its 188 member countries why it has lost their money so carelessly, and why it has made such a colossal hash of its affairs.
\nThe Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund\u2019s own rules and is in open contradiction with five years of analysis by its own excellent research department and chief economist, Olivier Blanchard.
\nGreece\u2019s public debt is 180pc of GDP. The loans are in a currency that the country does not control. It is therefore foreign currency debt. The IMF knows that Greece cannot possibly pay this down by draconian austerity \u2013 the policy already implemented for five years with such self-defeating effects \u2013 and the longer it pretends otherwise, the more its authority drains away.
\nIt is has pushed for debt relief behind closed doors but only half-heartedly, unwilling to confront the EMU creditor powers head on. Objectively, it is acting as an imperialist lackey \u2013 as Greek Marxists might say.
\nIndeed, it has brought about the worst possible outcome. The Fund\u2019s man on the ground in Athens \u2013 Poul Thomsen \u2013 has pushed the austerity agenda with a curious passion that shocks even officials in the European Commission, pussy cats by comparison.
\nThis would be justifiable (sort of) if the other side of the usual IMF bargain were available: debt relief and devaluation. This how IMF programmes normally work: impose tough reforms but also wipe the slate clean on debt and restore crippled countries to external viability.
\nIt is a very successful formula. On the rare occasion when the IMF goes wrong it is usually because it tries to prop up a fixed-exchange rate long past its sell-by date.
\nAll of this went out of the window in Greece. The IMF enforced brute liquidation without compensating stimulus or relief. It claimed that its policies would lead to a 2.6pc contraction of GDP in 2010 followed by brisk recovery.
\nWhat in fact happened was six years of depression, a deflationary spiral, a 26pc fall in GDP, 60pc youth unemployment, mass exodus of the young and the brightest, chronic hysteresis that will blight Greece\u2019s prospects for a decade to come, and to cap it all the debt ratio exploded because of the mathematical \u2013 and predictable \u2013 denominator effect of shrinking nominal GDP.
\nIt is a public policy scandal of the first order. One part of the IMF has issued a mea culpa admitting that its own analysts misjudged the fiscal multiplier badly. Plaudits to them.
\nAnother part of the Fund continues to push new variants of the same indefensible policies, demanding a combined fiscal squeeze from pension cuts and VAT rises equal to 1pc of GDP this year and 2pc next year even as the economy lurches back into recession.
\nAshoka Mody, former chief of the IMF\u2019s bail-out in Ireland, refuses to criticise his former colleagues on the European desk, but the meaning of the words I quoted last night are clear enough.
\n\u201cEverything that we have learned over the last five years is that it is stunningly bad economics to enforce austerity on a country when it is in a deflationary cycle. Trauma patients have to heal their wounds before they can train for the 10K.”
\n\u201cI am frankly shocked that we are even having a discussion about raising VAT at all in these circumstances. We have just seen a premature rise in VAT knock the wind out of a country as strong as Japan.”
\n\u201cSyriza should recruit the IMF\u2019s research department to be their spokesman because they are saying almost exactly the same thing as Syriza on the economics of this. The entire strategy of the creditors is wrong and the longer this goes on, the more is its going to cost them.\u201d
\nThe IMF\u2019s Original Sin in Greece was to allow the urbane Parisian Dominique Strauss-Kahn to hijack the institution to prop up Europe\u2019s monetary union and the European banking system when the crisis erupted in 2010.
\nThe Fund\u2019s mission is to save countries, not currencies or banks, and it certainly should not be doing dirty work for a rich currency union that is fully capable of sorting out its own affairs, but refuses to do so for political reasons.
\nIt was of course a difficult moment in May 2010. The eurozone was spinning out of control. There were no backstop defences \u2013 due to the criminal negligence of Europe\u2019s leaders and banking regulators \u2013 and fears of a euro-Lehman were all too real.
\nYet leaked minutes from the IMF board meetings showed that all the emerging market members (and Switzerland) opposed the terms of the first loan package for Greece. They protested that it was intended to save the euro, not Greece.
\nIt loaded yet more debt onto the crushed shoulders of an already bankrupt country, and further complicated the picture by allowing one large French bank and one German bank \u2013 no names please \u2013 to offload much of their \u20ac25bn combined exposure onto EMU taxpayers.
\n\u201cDebt restructuring should have been on the table,\u201d said Brazil’s member. The loans \u201cmay be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece\u2019s private debt holders, mainly European financial institutions\u201d.
\nArvind Virmani, India\u2019s member, was prophetic. “The scale of the fiscal reduction without any monetary policy offset is unprecedented. It is a mammoth burden that the economy could hardly bear,\u201d he said.
\n\u201cEven if, arguably, the programme is successfully implemented, it could trigger a deflationary spiral of falling prices, falling employment and falling fiscal revenues that could eventually undermine the programme itself.” This is exactly what has happened.
\nThe Fund might have atoned later by acknowledging its special duty of care towards Greece and softening the terms. It did not do so. We should hardly be surprised if Syriza is now on the warpath.
\nThe IMF needs to be careful. It has itself become an emblem of bad governance. Mr Strauss-Kahn was caught in flagrante delicto, only to be replaced instantly in a political stitch-up by another French finance minister (of quality and integrity \u2013 but that is not the point). Mr Strauss-Kahn\u2019s predecessor was recently indicted in Spain for fraud.
\nThe institution cries out for reform. There is no justifiable reason why the job of managing-director should go by divine right to a European, nor why the Europeans still control eight seats on the IMF board.
\n. . .
\nThese anomalies should have been sorted out at the time of the Strauss-Kahn debacle \u2013 along with quota reform blocked by the US Congress \u2013 all the more so since China and a host of rising reserve powers were already bursting onto the scene by then.
\nLeadership failed. The West disgraced itself. No wonder Asia is now going its own way with a rival set of bodies.
\nGreece\u2019s firebrand government is bringing matters to a head for an institution already in trouble, but one with a superb staff and still worth saving.
\nMrs Lagarde must stop playing the role of a diplomat. She must take off her European hat and speak instead for the organisation she leads and for the world.
\nShe must confront the EMU creditors head on and in public. She must tell them, in blunt language, that they share much of the blame for the current impasse.
\nShe must make it clear to them that Greece needs sweeping debt relief \u2013 as a matter of economic science, whatever the morality \u2013 and that the refusal of the creditors to face up to this elemental fact is now the chief impediment to a solution. And she should tell them that the IMF will no longer play any part in their deceitful charade.
\nIf she does not do so, and if the lack of leadership by Europe\u2019s political class leads to a catastrophic denouement on every level, then let it be on her head too.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The destruction by the Troika of the Greek economy and Greek society that we have witnessed these last five years may have one good outcome: it may bring reform to at least one of the organizations responsible, according to this scathing indictment by Ambrose Evans-Pritchard in the London Telegraph today. An excerpt: The International Monetary […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,35,64],"tags":[],"class_list":["post-7052","post","type-post","status-publish","format-standard","hentry","category-economics","category-history","category-politics","p1","y2015","m06","d05","h21"],"_links":{"self":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts\/7052","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/comments?post=7052"}],"version-history":[{"count":0,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/posts\/7052\/revisions"}],"wp:attachment":[{"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/media?parent=7052"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/categories?post=7052"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vukutu.com\/blog\/wp-json\/wp\/v2\/tags?post=7052"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}