Thursday, October 10, 2013

The IMF Pulls the Rug from Under the Greek Government

I thought that it would take longer than a day after yesterday's post for the IMF to show its fecklessness as a global economic institution, but here it is from the Wall Street Journal

The Greek government, based on a projection from those clueless prognosticators at the IMF, will only hit a 2014 primary budget surplus of 1.1% of GDP compared to the 1.5% contained in the terms of the first bailout.  40 basis points projected difference and the Greek government and people will be thrown to the wolves and not receive a next round of funds from the troika, which in turn will freeze any other creditors from acting also.  Meanwhile "negotiations" with the troika over how to solve this problem will begin in the next few weeks.  

The Greek government has done more than any the French or U.S. governments have ever done: the Greeks have actually cut wages and spending and decreased the primary deficit in the here and now, not at some future time.  Addressing the collapse in tax revenue collections and longer term issues of economic and administrative reform haven't gone as well as could be hoped, but surely none of the core EU countries can point to the Greeks and say, "Let's show you how we slashed our central government budget and reformed our economies in two years."  

The Greeks are being very circumspect in their statements, but their frustration is very clear in the short quotes reported in the Journal. 

“The Greek government does not comment on reports from international organizations like the International Monetary Fund,” it said, adding that it refrained from commenting “even when this organization (the IMF) accepted [it made] wrong assumptions and wrong estimates in the drafting of the first Economic Policy Program for our country.”  Let's remember that the Managing Director of the IMF admitted they "had no clue" that economic fundamentals in Greece would deteriorate so quickly after the first bailout.

Yet, the Greek government committed itself to the austerity program and suggests that it might consider more measures, even with likelihood that the IMF's 2014 forecasts for the EU will prove to be too optimistic.  

What this set of announcements does is to raise the specter of another Franco-German confrontation about solutions to the Greek debt crisis, casting the Germans again as the bad actors for not agreeing to have their taxpayers contribute to the "solution." Here we go again. 

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