At last IMF says the king has no clothes

It has been known for some time that the IMF considers Greek debt unsustainable and that any credible programme requires writing off a substantial proportion. But it is only on the eve of the Greek parliament voting on a brutally severe package of measures that it has said so openly and formally. Now, the creditors must be ready if the Greeks are to be expected to adopt measures which pile more pain on its already strained social fabric, to do what they are telling the Greeks to do: to face up to reality and admit that they have also made huge mistakes in the handling of Greek membership of the euro rate back to its flawed admission in 2002 and that by lending to Greece irresponsibly they did far more harm than good to the Greek people, acting little better than a backstreet loan shark.

It is pointed out that Greece’s votes for the Syriza government in January and in the July 5th referendum have to be balanced against the democratic wishes of the other 18 euro zone member states. But it should also be pointed out that whereas every Greek man, woman and child (except for a tiny minority with wealth held abroad) has had their lives drastically altered for the worse over the last six years, the impact on the lives of German or Dutch workers of writing off half of Greece’s debt would hardly be noticeable. Indeed actually it would just amount to acknowledging the reality that the money was lost when it was recklessly lent in the 2000s. Politicians in such countries would suffer scorn by the popular press but if the issue was tackled there would then be a reasonable possibility that Greece could recover and so no longer dominate the politics and newspaper headlines of the euro zone.

Ohi

I would have voted Yes. But the Greeks by a decisive majority voted No–Ohi–as they did to Mussolini’s ultimatum in 1940 and Ohi Day is still a national holiday.

The vote is against the humiliation to which the Greeks have been subjected by its euro zone partners and the “troika” (European Commission, European Central Bank and International Monetary Fund) since 2009, and which was again manifest when the Syriza government finally produced a serious budget programme which was welcomed by the European Commission but which was sent back by the IMF with red lines and corrections like a teacher marking poor homework.

The IMF represents many nations with incomes below Greeks even today, and well below the average of the euro zone, but has lent funds subscribed to by such countries. It should never have been involved in the Greek bailout back in 2010 and its loans should be bought out by the other euro zone countries who can well afford to do so.

The vote was against humiliation but the Greek government has to recognise that it cannot be against austerity. Even if the entire Greek debt were written off tomorrow, the government could not spend more than it receives in taxes and that means both high taxes and severely constrained spending ie austerity.

The resignation of the former finance minister, Yannis Varoufakis, immediately after the result of the referendum was his most statesmanlike move and a welcome development since he had shown no capability to grapple with the management of Greek public finances.

This resignation does mean that a last effort to agree a new bail-out may be worth a try since there was not very much difference between the final positions of both sides but hopes of success cannot be high.

In the event that an agreement remains elusive, the alternative will have to be embraced—a new currency for internal use, although the euro will still play a key role as it will remain the preferred currency for anyone who has access to it. That does not mean leaving the EU and must not mean that Greece is no longer a concern to the other euro zone countries or the EU institutions. If the outcome is euro zone exit that is a severe defeat for the EU project; if it meant leaving the EU either officially or by Greeks no longer feeling part of the EU that would be a catastrophe of historic proportions for Greece and for the EU.

As argued in the previous post, the fault for either outcome would lie at least as much with the other euro zone countries and the EU institutions as with the Greeks. The acknowledgement by Wolfgang Schauble, the hardline German finance minister, who has sometimes given the impression of smug superiority, that Greece’s partners would retain responsibility for the destiny of Greece, is to be welcomed. But that responsibility can only be what the EU has failed in so far to do, namely to give the Greeks a real chance to help themselves.