The IMF’s Anger – and what it means for the Eurozone’s crashing Periphery

The IMF’s recent report on Greece constitutes the culmination of the Fund’s Mea Culpa regarding its complicity in a series of toxic bailouts that have contributed to the unfolding Kossovisation of the Eurozone’s Periphery. Back in March 2012 this blog reported on a preemptive strike by the IMF the purpose of which was to cover-up another foretold program failure. The IMF’s next step was to confess to major errors in the computation of fiscal multipliers; a recognition that the fiscal consolidation program imposed upon our hapless countries was never going to produce anything other than an intensification of the debt-deflationary crisis. (See this post which explained the unholy alliance between economic illiteracy and political expediency that led to those ‘errors’ and this more recent interview for my assessment of the IMF’s strategy vis-a-vis Europe at large.)

Last February, I was invited to give a keynote talk at a conference of law specialists working on the legal requirements for Europe’s much debated Banking Union. It was there that I came to realise the depth of anger amongst IMF officials against Germany, Frankfurt and Brussels. As one of them put it to me in no uncertain terms, “the Europeans forced us into a program for Greece that sullied the IMF’s image (sic)”. More importantly, the IMF was livid that Germany was proclaiming a banking union in order to ensure that it never actually happens. That it honours the idea of a Banking Union in the breach rather than in the observance.

Of course, there is little doubt that the IMF has only itself to blame for becoming an unquestioning member of a troika bent on ‘extending and pretending’, with catastrophic results for millions of people in Europe who will now join South East Asians and Latin Americans spitting on the ground every time they hear the acronym IMF. After all it was only a few short months ago that Mrs Lagarde went along, against her better judgment, with yet another monstrous reincarnation of the Greek bailout – as narrated in this post. Come to think of it, Mrs Lagarde was adopting a pattern first displayed by her predecessor: Disagree with Europe’s analysis and policies but, at the crucial moment, back down and legitimise these policies through complicity. (See here for my ‘political economy’ of DSK)

Now that all is said and done, what opportunities is the IMF’s confession opening up for Europe? My answer is simple and will upset many of my friends on the left side of the political spectrum: Europe’s peripheral countries must forge a tactical alliance with the IMF at least in the context of pushing for an immediate transfer of ownership, responsibility, powers of restructuring and management of our bankrupt banks directly to the ESM and the ECB. Only in this manner will our nations have a chance to breathe again, to rid themselves of Bankruptocracy and plan for the future with a smidgeon of hope. At least on this, the IMF may be willing to part ways from Berlin and Frankfurt. I can think of no better way of driving a wedge through the Iron Curtain of Austerian Misanthropy.

55 thoughts on “The IMF’s Anger – and what it means for the Eurozone’s crashing Periphery

  1. Pingback: The IMF’s “mistakes” on Greece are nothing new | greek_independent_news

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  5. I’m not an economist, but I strongly believe that we are on the 3rd financial world war right now. US can’t export anymore its surpluses, due to,I believe, the fact that on the other side of the planet, China, is doing a greater job with them (cheaper products). In this regard, there is a crash between the planet’s financial giants, US-Europe vs. China. about who will be ruling the global economy. The price of this ambition is being paid of course by the people through taxation, salary cuts, inflation, unemployment and loss of wealth. Just my two cents.

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  9. That Europe created the EU after so many centuries of warfare was great progress. That the EU (and its precursors) helped nations like Ireland and Greece come up out of poverty was a profound accomplishment, on par with the rise of the Chinese middle class and the transformation of the southeastern part of the United States from the New Deal onward. That makes what Europe is doing to itself now even sadder.

    • The German court will do a great favor to Europe if it will cause the disappearance of Euro as it is today. Maybe later on when the economies of member countries will be more on the same footing Europe can reintroduce it back. As it is today where it causes misery to millions of people it is more criminal system than working system. The systems must be made as people really are not as some idiots want them to be.

  10. Pingback: The IMF’s Anger – and what it means for the Eurozone’s crashing Periphery | Liberate Greece

  11. The IMF has a political dimension(harmful to Greece) but its observations about the Greek economy are correct. Only foreign investment and export growth would save the economy.

    For the moment, foreign investment is not feasible due to the political situation. No sane investor would ever invest in a country governed by a fragile coalition of the unwilling and only a hair away from the radical leftist nonsense. The only way foreign investment could come to Greece is after a true, stable and openly pro-business government is established. And since such is not doable today then please scratch foreign investment as a credible option in our present condition. That FDI is a theoretical option yes, realistic option no.

    Which leaves us with exports as the only positive lever. I think the latest 1st quarter Greek export figures of 2013 tell a particularly explicit story. Whereas Greece is scoring impressive improvements with significant export partners, Germany again is dropping the ball on Greece. Check it out here:

    Turkey leads the pack as the number 1 export market for Greece with an impressive 39% increase over the same period last year. So is Italy as the number 2 Greek export market with a 26% increase over the same period last year. And where is Germany (the 3rd largest export market for Greece)? The answer is a disappointing minus 2%.

    But there is recession in Europe you might say. Therefore it makes sense for Germany to have a negative import increase of Greek products.

    Then how come Greece is able to have an 11% increase of its exports to France and 41% increase of its exports to Spain during the same period? Aren’t these two countries suffering more than Germany? Yet their purchase of Greek products is beyond a healthy increase.

    And how about a 37% increase of Greek exports to Libya, 100% to Egypt and 50% increase to Algeria? Not to mention a 1300% increase of Greek exports to Brazil as an example. Even Austria (which is a mini Germany) shows a 29% increase of Greek imports.

    The bottom line is this: in the only meaningful category (exports) for an immediate positive impact in the Greek economy, Germany disappoints again big time. Instead of being a reliable trade partner, Germany fails to step up to the plate and do what everybody else is doing in spades: buy more Greek products. Not only Germany fails to meet its quota of the solidarity trade (if you wish) but it keeps flooding the Greek import market with overpriced German products at the unheard of ratio of 3:1 (for each euro Germany imports from Greece, Germany has the audacity to sell 3 euros to Greece at this hour of need).

    Therefore here is the practical step to improve the Greek economy immediately. Demand a trade ratio of 1:1 with Germany. Either Germany ups its Greek imports, or Greece brings down its German imports to the balanced 1 to 1 level.

    • “Instead of being a reliable trade partner, Germany disappoints again big time”

      Do you want to tell the consumers in Germany what they should buy? Maybe the Greek offering does not appeal to them? Maybe Poland, Czech Republic or Slovakia has what they need?

      Get rid of the central bank manipulated interest rates and artificial currency exchange rate of 1:1 and you have a balance!

    • I don’t know how many times you have to be told this, but it is completely illegal for governments to influence intra-EU trade. It is the same as if the trade balance between California and Washington State was one-sided: there is no legal way to instruct anyone to stop imports or exports. The shift in trade patterns has to come from market behaviour, which can be influenced only indirectly.

      You can whine as much as you like about the German-Greek b.o.t. but nobody will pay any attention to you. It is like complaining that the tide comes in too much; Canute tried arguing on this point, with similar result.

    • “Demand a trade ratio of 1:1 with Germany.”

      What are the trade rations with other countries?

      “Either Germany ups its Greek imports, or Greece brings down its German imports to the balanced 1 to 1 level.”

      I vote for the 2nd approach. Since you, the Greeks themselves, can do it. No need to beg the Germans for anything. JUST DO IT!

    • Voluntarily Unemployed: “Do you want to tell the consumers in Germany what they should buy? Maybe the Greek offering does not appeal to them?”
      Guest (xenos): “You can whine as much as you like about the German-Greek b.o.t. but nobody will pay any attention to you.”
      Calm down. The point is: it is not necessarily Greece that is out of the loop. Good luck to the Germans that want to scrap the Euro. Let the Deutsmark soar, and save Europe.
      I know, the germans won’t tell you, but it is not the drachma or the peseta that is out of loop, it’s the German mark.

    • “it is not the drachma or the peseta that is out of loop, it’s the German mark.”

      None of These is “ou of the Loop” – All of them fit much better to the culture of the respective people who were using them. It is the Euro that is “out of the Loop”!

  12. Pingback: Nuestro aliado, el FMI | El Blog de Juan Pérez

    • And what the heck is wrong with your figures anyway? Greece Gvt Spending at 106 b? Ridiculous…

    • Why should the Germans be on the road of austerity? If you propose and implement that you will cause an even deeper recession in the periphery.

    • OK, the numbers are from Eurostat, and they believe what the countries are sending them…

      Government expenditure and main aggregates
      Source of Data: Eurostat
      SECTOR General government
      Total general government expenditure

      BUT, do you have better data and arguments, other than that everything in Greece is great and what was done was great and that it is all someone elses fault?

    • First of all, do you realise that Greece’s GDP is at about 185bil Eur. and your source claims that gvt spending is at 105bil i.e. almost 57% of GDP?

      Have a look at Eurostat yourself:

      “Why should the Germans be on the road of austerity? If you propose and implement that you will cause an even deeper recession in the periphery.”
      But why the periphery is in recession if no austerity has taken place as you like to claim?
      And no I am not proposing austerity for Germany at all.I am merely trying to hint that this joke with absolute numbers needs to stop because it makes no sense.Even Germany’s gvt spending kept growing in absolute numbers during the early 00s when it was under the reforms that now lead by example.It also kept growing when Germany along with France were the 1st to violate the Maastricht rules and it also similarly kept growing even when Germany ran surpluses.

    • “It also kept growing when Germany along with France were the 1st to violate the Maastricht rules and it also similarly kept growing even when Germany ran surpluses.”

      Correct, but noone called it austerity at that time! And even more importantly noone asked for money from other countries! The burden was put on the residents of Germany. No guarantess no debt forgiveness nothing came from other countries.

      Get the difference?

    • What a ridiculous statement! So we’re back to lazy greeks sipping ouzo in the sun while poor germans pay for it through the sweat of their brow?! Its all about morals & national character? And Germany didn’t have 10 years of austerity on the back of their workers following Harz IV, thus skewing the whole eurozone?

      Instead of immediate debt restructuring, Germany & France insisted on the first unprecedentedly huge bail out, precisely so as to bail out their bankrupt banks. The bailout money arrived in Greece and most of it was sent immediately back to the creditor countries, especially Germany and France. Of the money remaining in Greece, a huge proportion was spent on buying unneeded german & french military equipment, which both countries had made a of the conditions of the Bailout. Greece’s debt ballooned. Who benefitted from Greece’s bailout? Creditor countries, especially Germany & France!

      Germany & France have succeeded in transferring their banks’ toxic debts on to the shoulders of their citizens. The sovereign debt in Greece has likewise been transferred onto the shoulders of its citizens. ALL governments of the EZ have screwed their citizens in favour of the banks. The PSIs and elite capital flight together broke the greek banks – which UNLIKE the german & french banks actually had money in them (70% deposits vs german / french 30%) and had been unaffected by the 2008 crisis. (The same with Cyprus).

      Clearly you don’t read this blog if you are still saying ridiculous, out of date propaganda like this – the stuff trolls have been paid to say for 3 years now. You are 3 years too late!!

    • First i apologize because I was disagreeing about gvt. spending while for some reason I was having the size of the deficit in mind, thus my objection to the figures presented.So nothing wrong there, the figures are correct.

      “Correct, but noone called it austerity at that time!”
      Let’s not play with semantics here shall we? I don’t know what they called it, but one of the arguments has repeatedly been that Germany did what it had to do back then and now everybody else should do the same.I can only say that if what we are going through now is not austerity then what Germans had to go through back then, certainly can’t be austerity, for the harshness of the measures is way more extreme now.

      Now some of you whine that what we had already gone through is not enough and point to nonesensical figures like ABSOLUTE numbers.Which is the reason why i brought the respective German figures to the discussion.

      “And even more importantly noone asked for money from other countries!”
      Can you remind me when exactly Greece asked for this money?It seems like you are living in your own world and created your own stories in order to feel good or better than the rest of us.Greece should have never accepted these loans and Germany should have allowed Greece to default in its old debt.Even the loans would be more meaningful if they were given once Greece defaulted and was trying to jumpstart itself without such a large debt burden.

      But it looks like you are having a hard time realising who benefited from these loans.It certainly was not Greece and it surely isn’t the average Greek Joe who is going through AUSTERITY.

  13. There’s a very simple though critical question that is incredible how it escapes the minds of people: “Why would the powerful countries of the Eurozone decide to give a huge loan to Greece, the country of those lazy, spendthrift Greeks?”. And I don’t just mean the ordinary people (from German to Greek citizens). I’ve watched many of the interviews, that Mr. Varoufakis gives to Greek and foreign media, even in those panels, journalists and all kinds of invitees seem to completely fail to spin that question in their heads. Its really amazing!

    • @Chris D:

      Sure boss! You can’t trust those shiftless Greeks. They don’t want to work or pay taxes. And those poor innocent European investors that poured money into Greece with dreams of the big score who now have some worthless assets. And don’t forget Goldman Sach advisors who showed Greece how you hide your real debt.

      Greece is in big financial mess. Sure, most of it is their fault but they had some help.They are real people just like you and me. With dreams and hopes of a better life. They know that they have to pay a price but that price should include a way to return a better functioning economy.Not demands that continue to deepen the hole and cause so much pain to all Greeks.

    • Wow, seems that question I wrote not only escapes the mind of people but they rush to ignore it even when someone poses it to them!!
      JMarco, I’m not the one who says that Greeks are lazy and spendthrift, it was said (or implied) by many of those who, contrary to their beliefs (or assertions) about Greeks, decided to give them that huge loan. So, instead of sticking your mind in the “lazy, spendthrift Greeks” part of the question, can you look the question as a whole and try to answer it? Why did they give the loan?

    • “The Euro brings peace & prosperity to Europe!”

      That is a funny statement!

  14. “Europe’s peripheral countries must forge a tactical alliance with the IMF at least in the context of pushing for an immediate transfer of ownership, responsibility, powers of restructuring and management of our bankrupt banks directly to the ESM and the ECB.”

    I have been following your analysis all these years and have been convinced from the beginning. I do have a question though. If what you propose does not materialize, and the advanced state of euro disintegration that you have been describing comes to its natural conclusion, shall we not be better off with a national banking sector rather than having our banks sold to bigger european conglomerates? Our experience of the way foreign banks worked in Greece is that they were not interested in giving loans to enterprises but rather push the use of their credit cards. So, what if we go back to drachma and find ourselves without a national banking sector?

  15. I don’t think a tactical alliance is viable on many grounds:

    1. Why would you ally with an entity that has proven 100% ineffective in dealing with the paymaster (Germany)? Do you think that by forming an IMF alliance Germany might look kinder upon you? I think the exact opposite.

    2. Each state (Ireland, Portugal, Spain) have different needs and therefore different issues. You can’t aggregate these differences into a cohesive action plan that could win Schauble’s approval. And that’s the practical key. If you can’t win Schauble over then you need a better plan other than aligning yourself with victims of uneven damage.

    3. Greece’s primary role was to act as an example of avoidance. In other words a real example of misery lest any other EU state wanted to deviate from the German plan. Therefore the Greek misery is about 90% by design. And I don’t see a club here of those wanting to join in with a plague victim. In the same way that no one wants to associate with the worst class student.

    4. Greece has a lot of homework to do yet, therefore, release from the reform task is highly unlikely.(see latest IMF assessment report). Why would the IMF align itself with Greece and in the process expose itself to even more contributions in the future? Because if you just manage to irritate Germany then Schauble will tell you to go fix it with the IMF and not with Berlin.

    What Greece ought to do instead is to have a face-to-face meeting with Germany and lay down a credible plan of “dos and don’ts” going forward. In other words, Greece has to face Germany up front instead of hiding between agendas of who knows who/what hoping for a better outcome relying on action by others.

    Greece needs to ask an receive 0% financing on its debt (until the issue of debt reduction is settled), a trade with Germany of 1:1 (either Germany has to buy more Greek or Greece less German) and special provisions for the worst suffering European economy. Greece needs to assemble its highest and best team and get down to prevailing in the negotiating table through persuasion and logic. If Greece can’t do that, then we better keep our mouths shut and stick to the many tasks at hand. That is far more preferable than any false IMF hope. Holland used to be a hope last year and look at what happened.

    • Dean, old buddy, that’s perhaps the silliest post you’ve put up since you were claiming that Samaras was the only candidate in the election who had the courage to stand up to Germany. Reminds me of my sister who keeps saying “If we just had honest politicians, we wouldn’t be in this mess.” Right…

      “Greece needs to assemble its highest and best team…” Right…

      I first heard Yanis offer this idea of enjoining the IMF to break Germany’s grip on EU/EZ in that speech he gave, I believe in Croatia?, and hearing him then, as now, was not very encouraging – radical idea with little chance of implementation. However, I understand his strong wish that a solution could be found to stop the ongoing destruction of the economies of the periphery. And, of the existing governing institutions that rule Europe, the IMF is the ONLY candidate institution that has even a possibility of doing the right thing, despite their destructive neoliberal policies imposed on much of the developing world over the last 30 years or so. I think Yanis believes Lagarde might have it in her to do the right thing – I’m not convinced myself, but it the only hope for an institutional intervention to save the periphery.

      Govt in Europe got captured by bankers while no one was watching, so govt is part and parcel of their ongoing criminal enterprise. Yanis’ Modest Proposal was the antithesis of what government-as-ongoing-criminal-enterprise wishes for us. I’m not sure there’s an honest politician serving anywhere with actual governing power in all of Europe. And they’ve won the propaganda war – against us.

    • David:

      Last year Hollande was the only hope. This year Lagarde might be the only hope.

      Do you see the trend of absurdity here? why would the IMF have any interest in aligning itself with Greece? to gain what exactly?

    • BTW, David you are entitled to your own opinion. What is I think is silly is this blog’s obsession with Kleptocracy and Bank-whatever-o-cracy. As Paul Krugman puts it, managing an economy is just a job.

      You either know how to do it or you don’t. And those who don’t, certainly include those who never had the chance to practice it or those with an exceptionally bad reputation for such task. (that’s a euphemism for the radical left in case you missed it).

  16. Tactical alliance with the IMF: Out of the frying pan and into the fire… Although there is a bit of Sun Tzu/Macchiacellianism in that, I don’t think B&B and IMF can be played against each other substantially. And besides, when have Greek political leaders ever done anything rational over the past few decades so that they may do so now? As time goes by, and the apparent unsustainability of the current recipe is becoming obvious (to all) in a Darwinian/Neutonian manner, your propositions are becoming more and more far-fetched in the way that climbing mount Everest and looking for oxygen near the top would bring out more and more desperate attempts to quench the lungs with oxygen as the climb persisted. If only they had just read the Modest Proposal to begin with…

  17. There’s no political will in Europe’s periphery: the actual leaders, with the arguable partial exception of France, only obey to the Troika and the banskter lobby. So in order for any change, first of all there must be deep political changes in the governments of at least many of these peripheral states. And while this may happen in Greece, I doubt it will happen elsewhere in the short run (Italy’s political class is depressing, most of the Spanish and Portuguese ones also…)

  18. Be careful what you wish may just come true, even indirectly. The countries of Europe’s periphery (or rather their elites) are incapable of finding an understanding among each other in order to form a coherent and unified front against Germany and co, I find it extremely difficult that they could use the IMF individually in such a manner. For Greece and its neutered government naturally this is completely out of the question. I find more plausible that the IMF will very soon back out of these ridiculous and pointless bailout programs in order to preserve its preferable lender status and avoid taking any losses. This could prove to be the catalyst for our situation. All the IMF needs to do is to refuse to lend any more money to Greece, thus leaving the whole program hanging by a thread. Additionally it could also refuse to accept to prolong the maturities of any of its existing loans to Greece. These actions are enough, as they would completely destroy the farce that is the Greek bailout program instantly. My guess is that what is left of the Troika are aware of the possible implications of something like that and are preparing Cyprus-like solutions for Greece and company. That is if I can interpret correctly today’s news that the ESM will use no more than 70 billion in recapitalization operations- a fraction of what is actually needed. What remains to be seen from my point of view is whether the IMF will wait until the German elections or will chose to get back at the eurozone. What do you think?

  19. My answer is even simpler and on top of this much more realistic because relying on the own powers instead on the hope to forge something together with the IMF, of all organisations: the peripheral countries leave the eurozone. Should have done this years ago. Er even better: never joined this bastard of a common currency.

    • I am so surprised at myself.

      I completely agree with you Very Serious Sam.

      It would take just one country like Greece to move on exiting the Euro and soon I believe others like Spain, Portugal and Italy would follow. Greece needs to do something big and get that last bit of pain out of the way! How much worse could it be?

      Then Greece can start to look for help on securing some investments from the West possibly the US or even China. China has cultivated 50% of Oil production in Iraq. Surely they could find some value in Greece.

  20. I am sorry folks but all the IMF is doing is preparing for its exit.

    The so called admission of “wrong multipliers” and similar drama is nothing more than a coded message to the EU that the IMF is out of here. The big issue for the IMF is the participation in the OSI which the IMF refuses at all cost.

    All the IMF is saying is that if Europe acted sooner and did not allow part of the Greek sovereign debt to pass on to EU states, then the PSI could have been meaningful. Instead Europe made dubious political choices which now necessitate a new haircut …..but don’t expect the IMF to be around or contribute to such.

    This is a classic situation of the IMF telling its version of events and preparing everyone involved not to count on it for the next round of European nonsense.

    Error finding at this stage is basically cheap talk, means zero reversal of present policies and demarks a clear line of separation as well as the end of Troika which is around the corner. The monies left to disburse by Troika are trivial and between us girls Greece can manage without if need be. The damage is already done and there is no going back. So let all participants of the Troika scheme give their own version of events. It is both unproductive and meaningless.

    • “the IMF is doing is preparing for its exit.”

      You are right! I think so too!

    • +1

      …and more proof of what you are saying is that all talk of cutting taxes (VAT) was only academic as there is no real will to stop austerity. Watch the IMF do their Texas two-step right on out the door.

  21. According to the IMF GDP in Greece this year wil further decline by 4.2 % and that in 2014 Greece will have the first positive GDP rate after years (0.6%)!!!(hurray, our prayers have been answered!!!!) Then there will be a decline again…,and then the end of the world

    Wizards of economic insanity!
    …but it’s better to have wizards on your side iguess, if you fight with EU Chimera…

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