Sunday, September 27, 2015

Greece's Former IMF-Representative Hits Back!

If you are a country's representative at the IMF and a new government, or rather a new Finance Minister, replaces you rather quickly, it is only natural that you don't only have positive feelings about this government. This is the position which Thanos Catsambas, Greece's IMF-representative and Alternative Executive Director of the IMF (until April 2015), finds himself in.

In today's Ekathimerini-commentary, Catsambas writes about the Miracle That Didn't Happen. The miracle would have been that Alexis Trispras would have formed a broad-based coalition government; that he would have chosen ministers on the basis of competence and reform willingness; and that he would have requested from parliament extraordinary legislative powers for this broad-based coalition of competent ministers. Since this miracle did not happen, Catsambas concludes that the way towards an accelerated Grexit has now been paved.

In this context, it serves well to read a paper by Thanos Catsambas which he published earlier this month: Myths, Misinformation and Truths about the Greek Crisis. If, after reading the paper, I would have had to guess the name of its author, I would have guessed Prof. Hans-Werner Sinn. No wonder that the SYRIZA government did not want this man to be their representative at the IMF. Below are two excerpts which provide a flavor of the paper:

“The present Greek government argued formally and informally that austerity was the cause of the crisis and that it must end. The reality, of course, is the reverse: the latent  crisis  in  the  years  preceding  2010  was  the  cause  of  the  subsequent  austerity, because  any  economy  that  reaches  the  point  of  default  must  go  through  a  period  of adjustment to stabilize its faltering macroeconomic imbalances. Simply stated, a country that has been living beyond its means for decades, and for which the Day of Judgment has arrived, must go through a period of fiscal consolidation with a decline in its standard of living”.

“By the end of April, the IMF, the ECB, the European Commission and the US government (the latter had played an increasingly important role in the resolution of the Greek crisis behind the scenes) had all concluded that the Greek side was so inexperienced and ignorant about fundamental concepts of macroeconomic management, that further negotiations in good faith would be a waste of time. Therefore, they decided to present the Greek authorities with “take it or leave it” proposals, albeit in the beginning gradually and in a measured pace ... Surely,  the  decision  makers  of  Syriza  (who,  it  is  now  revealed,  were surrounded by inexperienced, ineffective, and well-paid “international advisors") showed an  amazing unfamiliarity  with applied  macroeconomics  while  promulgating  advanced theoretical  concepts  coupled  with  a  contempt  for  down-to-earth  arithmetic.”

Regrettably, Catsambas - like so many others like him - commits the oversight of not pointing out how much of an austerity adjustment Greece has made so far. The government's total primary expenditure had declined from 128 BEUR in 2009 to 88 BEUR in 2014. That is a reduction of 40 BEUR or 31%!  

Catsambas argues, probably correctly, that Greece had no alternative but to go through that adjustment given the excesses in previous years. One has to bear in mind, however, that most, if not all, European countries consider it 'austerity' when they reduce the growth in spending but not the spending in nominal amounts. Since Greece reduced spending in nominal amounts and it did so in dimensions which may not have been seen in any other developed country before, it would have been necessary to point this out.

If nothing else, it would have made Greeks feel better and perhaps more inclined to accept Catsambas' argumentation.


  1. Thanks for pointing out Thanos Catsambas blog:

    - It gives interesting behind the scene explanation on the relations between Syriza government and its international partners.

    - Very interesting views as well on the inevitability of deficit reduction for Greece post 2009

  2. Does not surprise you might have thought Myths, Misinformation and Truths about the Greek Crisis was from Sinn, he was one of the two references quoted in Catsambas' paper.

    I'd be interested in your views on Sinn's The Greek Tragedy. Much of it is over my head, but in recent times his shorter pieces have made a lot more sense that what I saw a few years ago. I wonder if he has a better translator, German<->English translations are not easy - ask Google.

    Professor Sinn's paper is here ==>>



    1. I had read Sinn's thesis at the time it came out. He disputes that more than 90% of the "help for Greece" was only help for banks. He is correct in the sense that he starts counting back in 2008 (and not 2010) and that he includes all funds flows (i. e. including the ECB with its target2) and not only the lending to the Greek state. If you count that way, the correct conlcusion is that only 1/3 of the money sent to Greece went to banks.

      Varoufakis would probably say that Sinn argues like a bookkeeper for whom the books must balance but without the global view of the Eurozone as a currency union. I have never seen a response to Sinn's thesis by Varoufakis.

    2. kleingut, your article about "Target 2", was way beyond me.

      But, no doubt with a high rate to misunderstand, that it may be a piece in this larger puzzle. For me at least.

      Who did close the banks? According to Yanis Varoufakis the ECB to pressure Greek into surrender. In other words, the EU's (Schäuble's) conspiracy against Greece.

      Or the ECB that decided, I have no idea how to put it in correct economical terms, it had to limit and maybe stem something like a limitless outflow?


    3. Klaus, I noticed the article too.

      But who is the Greece representative in the IMF now.

      A maybe too short check via Google seemed to suggest that the lady he suggested didn't take the job.


    4. @ Anonymous at 12.16
      The nature of Target2 is such that it only begins to rise when Greek banks cannot refinance all their Euro-needs in the market with foreign lenders. Target2 began to rise in 2008. Sinn argues that, therefore, official help for Greece began in 2008 (and thus the total of 'help' become larger than when starting to count only in 2010).

      The Greek government closed Greek banks because no one other than the Greek government can do that. The government had not choice but to close the banks because the ECB informed that they would no longer increase financing for the banks whereas the banks needed increased financing to withstand deposit flight. The ECB argued that financing is based on acceptable collateral, that is Greek government bonds for the most part. When it became clear that there would not be a deal before June 30 (because of the referendum announcement), the ECB argued that it could no longer deem Greek government bonds as acceptable collateral because Greece would soon be without a program. No conspiracy or anything like that. Simply a straight-forward application of ECB rules.