My understanding is that, back in late 2009 when it became clear that Greece's Balance of Payments was headed for trouble, the newly elected Prime Minister George Papandreou wanted to go directly to the IMF for help. EU-elites, ever so confident that they are smarter than the rest of the world, used all available pressure to prevent Mr. Papandreou from doing that. And Mr. Papandreou, not known for the leadership strength which his father had displayed, caved in.
That was the prodigal sin in the whole Greek and Eurozone debt problem!
The IMF is the world's center of competence for Balance of Payments problems of countries. They may not always have the right recipes for economic turn-around's (and more often than not they don't) but they have all the blue prints for restructurings of sovereign debt. Furthermore, when countries develop ire at austerity measures, which they naturally always do, their ire goes against the IMF as a supra-national institution and not against individual countries (i. e. like against Germany).
I am certain that the IMF would have followed the traditional policy that "risk takers must remain risk carriers". In other words, the focus would have been on rescheduling existing debt with existing creditors instead of using tax payers' money and Greece's balance sheet to pay out private creditors (and call that 'help for Greece'). Only the Fresh Money requirements, which were about 20% of the total rescue funding disbursed todate, would have been handled by official institutions like the IMF, EU and/or ECB.
So, Mr. Papandreou can indeed tell the Harvard students at his lectures there that he had the right idea from the start and that things would be much better today if the EU had allowed him to pursue his ideas. That's quite a vindication. However, he should also be prepared to answer the following question which a clever Harvard student might ask: "If you were so convinced that you had the right idea for your country, why did you cave in?"
That was the prodigal sin in the whole Greek and Eurozone debt problem!
The IMF is the world's center of competence for Balance of Payments problems of countries. They may not always have the right recipes for economic turn-around's (and more often than not they don't) but they have all the blue prints for restructurings of sovereign debt. Furthermore, when countries develop ire at austerity measures, which they naturally always do, their ire goes against the IMF as a supra-national institution and not against individual countries (i. e. like against Germany).
I am certain that the IMF would have followed the traditional policy that "risk takers must remain risk carriers". In other words, the focus would have been on rescheduling existing debt with existing creditors instead of using tax payers' money and Greece's balance sheet to pay out private creditors (and call that 'help for Greece'). Only the Fresh Money requirements, which were about 20% of the total rescue funding disbursed todate, would have been handled by official institutions like the IMF, EU and/or ECB.
So, Mr. Papandreou can indeed tell the Harvard students at his lectures there that he had the right idea from the start and that things would be much better today if the EU had allowed him to pursue his ideas. That's quite a vindication. However, he should also be prepared to answer the following question which a clever Harvard student might ask: "If you were so convinced that you had the right idea for your country, why did you cave in?"
Are we sure that Dominique Strauss-Kahn didn't encourage Papandreou to go to the EU. I had the impression at the time that the IMF did not see Eurozone countries as their problem.
ReplyDeleteThe Vienna Initiative, signed in Feb 2009, gives us an indication. It's directed to assisting non-Euro countries weather the storm - Poland, Serbia etc. But the IMF, EU, ECB, EIB etc were all in the room so there may well have been an unwritten agreement - that the EU/ECB would look after Eurozone countries. The Euro belongs to the ECB, just as the US$ belongs to the Fed and the UK£ belongs to the BoE. They set monetary policies, and in concert with other agencies they regulate financial institutions, and the EU sets competition and trade policies etc.
So I wonder how the IMF could have ring-fenced Greece from the ECB the EU. I also question whether the IMF knows how to deal with countries that have given up much of their sovereignty to another supra-national institution. I can't think of a precedent - mainly because the EU/ECB is unique.
If the Gibraltarians asked the IMF for a bailout, they might give them a bus ticket to London, similarly for Tasmanians, a bus ticket to Canberra. Eurozone countries are something akin to colonies or provinces - which as far as I know, don't get IMF bailouts.
This IMF Factsheet is interesting ==>> The IMF and Europe
The IMF apparently likes what Iceland did ==>>
IMF Says Bailouts Iceland-Style Hold Lessons in Crisis Times
CK
Afterthought : It might have been better if the IMF had made loans to the EU/ECB - and told them what needed to be done :rofl: