“Greece lenders living in fantasy land” – former IMF official

bare treeReza Moghadam, the head of the IMF European department until last year, has argued that Greece’s lenders are demanding too many reforms from the country too soon, and this persistence is undermining the ongoing negotiations to a ‘dangerous’ degree.

According to Moghadam writing in the Financial Times, Greece and its creditors have become locked in a repetitive loop by which alternate emergency Eurogroup meetings and meetings of the institutions formerly known as the troika (IMF, ECB, EC) fail to produce agreements, triggering yet further rounds of fruitless emergency meetings and associated uncertainty.

The persistent ‘insanity’ of repeating this process and expecting different results risks ‘triggering a recession, bank run or accidental exit from the euro. A new approach is needed before time runs out,’ according to the former IMF official.

Greece lenders are effectively living in a fantasy world, Moghadam argues, being ‘insufficiently mindful’ of the domestic politic situation, the government’s inexperience as well as the institutional shortcomings of the Greek system.

As such, Europe is demanding the impossible of SYRIZA – specifically the implementation over the next few weeks of a “long and comprehensive list of actions that previous governments were unable to deliver in the space of a few years.”

Moghadam puts forward a relatively simple three step plan to reduce the uncertainty in the short-term and pave the way for rebuilding trust and establishing a long-term solution to the crisis.

Rather than demanding ever-longer lists of detailed reforms which in the best case scenario would take months to fully implement, Greece’s lenders should for the time being demand a ‘few core actions’ in return for short-term funding to keep Greece afloat over the next few months. This would allow the necessary breathing space for a blueprint for reform and financing for the next two to three years to be established.

Specifically the government could be called upon over the next 3-4 weeks to implement a few key reforms such as law changes rendering the revenue service more independent, strict anti-corruption measures and VAT policy and enforcement reform.

Swift and faithful Implementation of the reforms would prove the government’s commitment and capability to actually implement changes which would help rebuild trust. (Alternatively Moghadam writes, ‘if Greece cannot deliver such a limited but critical set of reforms, it had better prepare to leave the eurozone”).

In return Greece’s lenders could release some bailout funds to meet the country’s external loan obligations due over the next few months, thus removing the immediate uncertainty and threat of capital controls and a potential Grexit.

This would allow both sides the time to “start defining the contents and parameters of a longer-term reform programme that would be put in place before the very large repayments to the ECB and IMF in July and August.”

Following Greece’s payment of a 450 million euro debt instalment due today to the IMF, Moghadam argues that there is now a short window of opportunity for a new more productive approach to the negotiations.

See full report here

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