IMF Led Creditors Seek Further Harsh Austerity for Greece

euro_deface_05Parliamentary Briefing Note – The Australia-Greece Solidarity Campaign has produced a parliamentary briefing note that has been distributed to members of the Australian parliament. It calls for Australia to take a principled diplomatic stand that is reinforced by our self-interest when it comes to Greece and its financial negotiations. The Australian government must send a clear message to the IMF that it expects it to act on the advice of its own research department which has advised that a portion of the Greek debt must be written down. The Australian government should also use its voice within IMF structures to call for it to desist from imposing policy conditions of austerity. These will only further deplete the Greek economy with horrendous economic and social impacts.

The parliamantery note is produced below.

Background

In May 2010, the Eurozone countriesEuropean Central Bank (ECB) and International Monetary Fund (IMF), later nicknamed the Troika, launched a €110 billion bailout loan to assist Greece meet its obligations (largely to European banks).

This was conditional on implementation of austerity measures, structural reforms and privatization of government assets.

A year later, a worsened recession along with a delayed implementation by the Greek government of the agreed conditions in the bailout programme revealed the need for Greece to receive a second bailout worth €130 billion. Further and stricter austerity was demanded again.

After all this, most of the disbursed money has left the country to assist lenders with less than 10% reaching the people of Greece.

The effect of the austerity policies has been to sharply diminish economy activity which has driven ever higher the debt-GDP ratio. This has left Greece caught by a pincer effect of both a contracting economy and an increasingly unsustainable debt.

The damage done was entirely predictable and known within the IMF itself. Leaked minutes of the IMF Board meeting in 2010 which decided on the bailout showed that many countries were opposed and thought debts should be cancelled instead.

Greece  elected a new government in January 2015 (led by the SYRIZA party) that included a mandate to negotiate fairer terms for the national public debt.

Current phase of negotiations

After months of submitting a series of proposals that were deemed by the lenders as being insufficient or unclear or lacking in detail, the new Greek government submitted on June 3 its detailed proposal with a thorough detailing of Greek government commitments.

These are commitments which have travelled a long way from the government’s starting point. These changes and reforms will structurally improve the financing position of the government, and yet not impose undue and counterproductive harm to the economy and people’s lives.

In response, the IMF and the Eurogroup have completely refused to make any serious compromises for an agreement to release outstanding funds under the existing ‘bailout’ package.

According to the UK Daily Telegraph, the IMF representative in the negotiations, Poul Thomsen, has “pushed the austerity agenda with a curious passion that shocks even officials in the European Commission, pussy cats by comparison”.

The IMF is demanding further sweeping measures of austerity at a time when the Greek government debt burden stands at 180% of GDP, when the Greeks have already applied the biggest swing in budget deficit to surplus by any government since the 1930s and when further austerity would only drive the Greek economy even deeper into its depression.

While all the lenders share a responsibility for the harsh and inflexible position they have taken into these negotiations, it is the IMF leading the austerity charge.

No economic justification for the austerity policies

The former IMF Deputy-Director of the European Department (Ashoka Mody) has lambasted the persistence of the IMF with a catastrophic approach to debt write-down and austerity:

Almost everyone now agrees that pushing Greece to pay its private creditors was a bad idea. The required fiscal austerity was simply too great, causing the economy to collapse. The IMF acknowledged the error in a 2013 report on Greece. In a recent staff paper, the fund said that when a crisis threatens to spread, it should seek a collective global solution rather than forcing the distressed economy to bear the entire burden. The IMF’s chief economist, Olivier Blanchard, has warned that more austerity will crush growth.

Broad implications of failed negotiations

The immense strategic dimensions of a failure to find a compromise position with Greece have been summarised by the Nobel Laureate economist Joseph Stiglitz:

It is not in the interest of Europe – or the world – to have a country on Europe’s periphery alienated from its neighbors, especially now, when geopolitical instability is already so evident. The neighboring Middle East is in turmoil; the West is attempting to contain a newly aggressive Russia; and China, already the world’s largest source of savings, the largest trading country, and the largest overall economy (in terms of purchasing power parity), is confronting the West with new economic and strategic realities. This is no time for European disunion…

The future of Europe and the euro now depends on whether the eurozone’s political leaders can combine a modicum of economic understanding with a visionary sense of, and concern for, European solidarity. We are likely to begin finding out the answer to that existential question in the next few weeks.

Implications for Australia of failed negotiations

There are approximately 130,000 Australians living in Greece and many of these will be tempted to join the thousands that have already left Greece to return to Australia. As a result of failed negotiations leading to a default by the Greek government, there will be forced economic migration to Australia. This will be upsetting for many of these citizens and impose resettlement costs for Australia. This will be especially the case for the older citizens that have returned to see out their retirement in Greece.

As a shareholder within the IMF, there will also be a direct financial cost to Australia from any default by Greece on the money it owes to the IMF (more than USD30 billion).

It will be a spectacular own goal by the IMF to demand such harsh austerity conditions that a country defaults and it ends up costing Australian and other taxpayers more than USD 30 billion.

Call for Australia to demand greater responsibility from IMF

It is time for Australia to take a principled diplomatic stand that is reinforced by our self-interest when it comes to Greece and its financial negotiations.

The Australian government must send a clear message to the IMF that it expects it to act on the advice of its own research department which has advised that a portion of the Greek debt must be written down.

The Australian government should use its voice within IMF structures to call for it to desist from imposing policy conditions of austerity. These will only further deplete the Greek economy with horrendous economic and social impacts.

Further information

Adam Rorris, National coordinator – Australia-Greece Solidarity Campaign

email: austgreececampaign@gmail.com

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