The destruction of Greece – “only a down payment” according to the IMF

On April 22, 2017, the Italian Minister of Economy and Finance, Pier Carlo Padoan presented a briefing to the 25th Meeting of the International Monetary and Financial Committee of the IMF in Washington. He spoke on behalf of Albania, Greece, Italy, Malta, Portugal and the Republic of San Marino. This annual event examines the “macroeconomic outlook” of the nations in question and conditions the IMF policy approach for the year ahead. Padoan, an ardent pro-Eurozone supporter, told the gathering that in the last year, the Greek economy was recovering and that “GDP remained stable in 2016, while for the first time since 2010 two consecutive quarters of growth were reported”. I wonder what data he was looking at. The official national accounts data for Greece doesn’t tell that story. With Greece still wallowing in the depths of recession, it is clear that the IMF hasn’t finished with the destruction of that formerly independent nation. The destruction to date (27 per cent contraction and increased poverty) are considered by the IMF to be “only a down payment” on what Greece has to do so satisfy the Troika. At what point do people start to realise that the on-going costs of this austerity dwarf the significant costs that would accompany exit? And the Troika is not done with Greece yet. They intend to screw it down even further. And the costs of remaining in the dysfunctional monetary union escalate by the day. At some point, the Greeks will realise they have been dudded. What is left is anyone’s guess – but it won’t be pretty. The destruction of Greece is “only a down payment” according to the IMF – keep that mentality in mind when you are working out whether Greece should remain obedient or tell them all to f*ck off and regain their currency independence and restore prosperity.

It is true that in the second and third-quarters of 2016 Greece recorded positive growth (0.3 per cent and 0.6 per cent, respectively).

But as the next graph shows, to claim that the situation has “stabilized” is somewhat far-fetched. Both annualised and quarterly real GDP growth fell sharply in the final quarter of 2016 (-1.2 per cent Q-on-Q and -1.1 per cent Y-on-Y).

Remember all the hype about the Eurozone in the 1990s? Convergence, convergence, convergence!

The next graph shows real GDP indexes for the US, Greece and the Eurozone 19 Member States taken together from the peak-quarters before the crisis (December-quarter 2007 in the case of the US and March-quarter 2008 for Europe) to the December-quarter 2016 (latest data).

The Greek economy has already shrunk by 26.3 per cent and is still contracting (as noted above). By comparison, the US economy has grown by 12.1 per cent over the same period and we would say that their growth rate is nothing to cheer about.

I could show you any number of indicators (inflation, real GDP, labour market, you name it) which would refute the raison d’être of the monetary union – convergence of outcomes.

The contraction in the Greek economy is also matched by the per capita outcome as is shown in the next graph. The data comes from the European Commission’s AMECO database.

The nations were moving along together in the pre-GFC ‘fools’ paradise’ period, which had all the Eurozone cheer leaders out their loud and proud.

But as soon as the first major downturn hit the weaknesses of the currency union was exposed along with the use of fiscal austerity.

The US stimulus sustained a consistent recovery in GDP per capita whereas the austerity imposed in Europe and the UK, after early stimulus packages saw these regions tracking the US performance, saw them retreat and then follow a much weaker growth path.

When George Osborne realised in 2012 that his proposed austerity measures were killing the British economy, his return to stimulus saw the economy improve again in per capita terms and leave the Eurozone behind in its wake.

But the impoverishment of GDP – the deliberate act of sabotage its prosperity by the Troika – aided and abetted by the Greek government – is something else.

Another view of GDP per capita is to compare the change between 2007 and 2016.

The following graph shows the GDP per capita as at 2016 with the base year 2007 = 100.

Greece has fared the worst – a 23 per cent decline in GDP per head since 2007.

Italy and Spain have stood still.

Look at the concentrated bunching of Eurozone Member States at the bottom of the sample – all clumped together – delivering no growth in prosperity for their citizens over the last 9 years.

One might think the architects of this disaster would just be silent for a while.

But then this is the likes of the IMF that we are dealing with and they haven’t finished with Greece by a long shot. Leading up to the next bailout talks – yes, it is overt crisis time in the Aegean – again – the IMF was reported to be “delivering a sobering message for Greece” (Source).

The Wall Street Journal article (April 23, 2017) – IMF Warns Greece That Additional Economic Overhauls Are Needed – “Deep structural reforms, many of which are not yet on the books” are still required if Greece is to satisfy the demands of the Troika or presumably face bankrupcty.

The threat merchants from the Troika juxtapose obedience with bankruptcy and have managed to con the Greeks and many on the Left in Europe that the former is eminently preferable to the latter.

It is such an amazing confidence trick. I would take bankcruptcy – in the meaning of the word in this context – any day over obedience to the Troika.

Seven or eight years ago, the neo-liberals (supported by so-called pro-European progressives) claimed that the costs of exit for Greece would be enormous relative to staying in the Eurozone.

Remember the yearly April forecasts from the IMF WEO for growth in Greece. To remind you here is a graph which shows the sequence of annual real GDP growth predictions from the IMF for Greece, starting with the April World Economic Outlook and ending with the April 2016 outlook.

The thick black line is tha actual outcomes. The IMF were never even close.

But it was this promise of rapid growth despite the harsh austerity that kept people believing the costs of remaining in the Eurozone were worth it in the long run when compared to exit.

My view remains (as it was) – the costs of exit, though significant, would be miniscule compared to what Greece has already endured. And with unemployment forecast to remain above 10 per cent (it is around 23 per cent still) until at least 2050, then the ‘stay-in’ costs are going to get bigger and bigger.

Exit remains the best option.

Which is why I would have seen the obedience-bankruptcy threat tactics as a glowing invitation to default (redenominate) and leave the sordid and dysfuntional monetary union behind.

Greece would be growing nicely if it had left and returning some prosperity to its citizens.

But the head of the IMFs European Department “and Greece’s original bailout architect” one Poul Thomsen, claimed last week that Greece’s:

… fiscal and structural reforms…pension reforms, tax reforms, are only a down payment … deep structural reforms, many of which are not yet on the books … This is a long-term project …

Yes, they have only been in Depression for 9 years and have only shrunk by 27 odd per cent. There is more destruction to be done.

I would remind readers who this “Mr. Thomsen” is.

Let’s go back to February 11, 2011, when the IMF’s independent evaluation unit – Independent Evaluation Office (IEO) – released a report – IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07 – which presented a scathing attack on the Washington-based institution.

It concluded that the Fund was poorly managed, was full of like-minded ideologues and employed poorly conceived models.

In a previous report the IEO had demonstrated how inaccurate the IMF modelling has been.

But the IMF is an organisation that goes into the poorest nations and bullies them into harsh policy agendas which the IEO has now found to be based on poor theory and inadequate model implementation.

So the IMF is not only technically incompetent but is also responsible for what is a humanitarian disaster in Greece.

The IMF were on the front-line of the neo-liberal financial and labour market deregulation frenzy that set up the conditions that would explode as the GFC in 2008.

As the private debt was building up and the shonky (and criminal) bankers were increasingly defying responsible and ethical business practice, the IMF were bullying governments to deregulate further and to reduce the scope and quality of public services.

They had already inflicted this madness on defenceless less developed countries – pushing huge levels of debt onto them and slashing public services.

Once the IMF had its ‘man’ in place in these nations, who would do their bidding without asking questions, it was declared a model nation by the Washington organisation, while its resources were plundered by the domestic elites and foreign capitalists.

The 2011 IMF Evaluation Report:

… finds that the IMF provided few clear warnings about the risks and vulnerabilities associated with the impending crisis before its outbreak. The banner message was one of continued optimism … The belief that financial markets were fundamentally sound and that large financial institutions could weather any likely problem lessened the sense of urgency to address risks or to worry about possible severe adverse outcomes. Surveillance also paid insufficient attention to risks of contagion or spillovers from a crisis in advanced economies.

In fact, the IMF ignored the advanced economies altogether in their “Vulnerability Exercise” which they undertook after the 1997 Asian Crisis.

What reason did the Evaluation Report give for the IMF incompetence?:

The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches. Weak internal governance, lack of incentives to work across units and raise contrarian views, and a review process that did not “connect the dots” or ensure follow-up also played an important role, while political constraints may have also had some impact.

The IMF is an ideological church of the mainstream macroeconomics.

The Evaluation Report criticises the “governance” of the IMF at the senior levels for creating what I would term to be a yes-sir-how-high-do-you-want-me-to-jump culture.

When often the correct response is to ask why the hell should I jump, IMF staff have no “incentives … to deliver candid assessments” to their managers who operate “silos and ‘fiefdoms'”.

Has there been any change in the underlying culture of the organisation as a result of this scathing assessment of its own independent audit and evaluation unit? If you think that, then you would probably be wrong.

On April 2, 2016, our friends from WikiLeaks released a new document – 19 March 2016 IMF Teleconference on Greece – which should convince you that the IMF hasn’t made much progress in changing its bullying and destructive culture.

The accompanying media release – IMF Internal Meeting Predicts Greek ‘Disaster’, Threatens to Leave Troika – details how the “Transcript of an Audio Recording of an internal IMF meeting” held on March 19, 2016 plotted to create a new solvency disaster in Greece to get its way with its other Troika members, particularly the puppet master in the Eurozone, the German government (Merkel).

Three IMF officials who are “managing the Greek debt crisis” are recorded in the conversation. The officials were Poul Thomsen, the head of the IMF’s European Department, Delia Velkouleskou, the IMF Mission Chief for Greece, and Iva Petrova from the IMF. Thomsen is still doing this job.

The context was a meeting in Athens to discuss the next tranche of bailout assistance from the Troika.

By way of background, the reports coming out of Athens in March 2016 were that there was increasing tension between the IMF and its Troika partners over what new economic tyranny they would all push on Greece.

The teleconference occurred amidst that tension. It was discussing when the bailout talks that were stalled might resume. One IMF official said that any date would be premature given that “when we might not have an agreement inside the Troika on how to proceed”.

They said the “Europeans” were pressuring the IMF to reach an agreement but that given the rift between the parties it was hard to see how the IMF could get the Europeans to shift ground.

Petrova said:

I think that it is more important to reinforce the message about the agreement on the 2.5%, because that is not permeating and it is not sinking very well with the Commission. If they stick to this agreement, I think that coming on the 2nd of April will be fine. But, on our side, going back on this date will really be a disaster.

Thomsen responded that the Europeans would have “to accept our targets for the debt relief” and they proceeded to talk about discussing some percentages that might be entertained.

Thomsen then said that the IMF will not finance the bailout if the other Troika partners are “not on track to meet the criteria”:

They essentially need to agree to make OUR targets the baseline … Instead of waiting for them… I am not going accept a package of small measures. I am not.

The bullying tone is evident.

Velkouleskou then said that the austerity had to be maintained:

… it is very simple it is the pension reform, income tax credit, VAT and the wage bill and there are some excises, one or two… that’s it.

And then Thomsen said:

I think about it differently. What is going to bring it all to a decision point? In the past there has been only one time when the decision has been made and then that was when they were about to run out of money seriously and to default. Right?

Velkouleskou replied:

Right!

And then Thomsen says:

And possibly this is what is going to happen again. In that case, it drags on until July, and clearly the Europeans are not going to have any discussions for a month before the Brexits and so, at some stage they will want to take a break and then they want to start again after the European referendum.

After discussing how they will coerce Angela Merkel, Thomsen said they will confront Germany with this:

Look, you Mrs. Merkel you face a question, you have to think about what is more costly: to go ahead without the IMF, would the Bundestag say ‘The IMF is not on board’? or to pick the debt relief that we think that Greece needs in order to keep us on board?

They discuss dates to introduce these threats.

Velkouleskou says that mid-April is a good time to escalate matters to which the Thomsen replied:

But that is not an event. That is not going to cause them to… That discussion can go on for a long time. And they are just leading them down the road… why are they leading them down the road? Because they are not close to the event, whatever it is.

Velkouleskou responded:

I agree that we need an event, but I don’t know what that will be. But I think Dijsselbloem is trying not to generate an event …

Thomsen replied:

Yeah, but you know, that discussion of the measures and the discussion of the debt can go on forever … But there is nothing in there that otherwise is going to force a compromise. Right? It is going to go on forever.

They also noted that their initial entry into the negotiations was flawed, with Velkouleskou saying that:

… we went into this negotiation with the wrong strategy … We didn’t negotiate with the Commission and then put to the Greeks something much worse, we put to the Greeks the minimum that we were willing to consider and now the Greeks are saying “Well we are not negotiating”.

King hit proposed, a bash in the head would do!

The ‘event’ that brought Greece to heal in June 2015 was the ECB decision to starve the Greek banks of liquidity – in total violation of its charter to maintain financial stability within its jurisdiction.

How many Greek people lost income over that blackmail? How many took their own lives? How many plunged into mental illness?

Did the IMF come up with a measure of their sordid part in all that?

And now Thomsen is back – threatening and haranguing a subservient polity in Greece who call themselves Socialists but have done more damage to their own nation by taking the obedience option that the conservatives could have ever dreamed of doing.

The Troika are now claiming (largely at the behest of the IMF) that if Greece cuts further it will receive debt relief.

Why the Greeks are worried about their external debt is beyond me. Why not just refuse to pay it and let the debtors (largely the ECB these days as a result of the deals done with the previous bailouts (which insulated the private German and French banks from exposure) sort out the implications of that?

Why not threaten Brussels with default (redenomination) and exit if they don’t allow the Greek government to expand its fiscal deficit to stimulate growth – along the lines of Spain, which only is growing because its fiscal position is in violation with the fiscal rules – conveniently ignored by Brussels as it wanted the PP government returned?

Why not demand that the ECB include Greek government debt in its QE program – thereby ‘funding’ the deficit.

If not, we leave!

Then the bullies would be on call and the compromises would come thick and fast.

But the spinelessness of the Greek polity combined with the sociopathological joy of the Troika in bringing this rogue nation to heel will ensure no such confrontation occurs and Greece will continue to wallow at the bottom of the Eurozone.

It is forecast that Greece currently needs an injection of around “€100 billion in emergency bailout cash” to stay afloat for a while. This would further add to its “already massive debt burden, that could also deepen the budget cuts and economic overhauls required to get Athens’ balance sheets back into the black and prolong what has already been a near decadelong ordeal for the country.”

And the costs of staying in – huge and getting bigger.

Meanwhile, the Germans are enjoying success in taking over the ownership of some of the Greek government’s (national) prime assets.

The Handelsblatt reported (April 25, 2017) – German-led Consortium Highest Bidder for Greek Port – that the Germans will take a large stake in the sale of Greece’s Thessaloniki port along with some French partners.

The Government will forego its claim to the revenue stream derived from this port and also the largest port of Piraeus in order “to raise revenue and pay its debt obligations”.

Many Greeks would be forgiven for asking “who won the Second World War”.

Conclusion

Convergence?

Well, the European Commission and the Member States all fudged, lied, deceived in the official convergence period leading up to the Phase III of the Maastricht process – the adoption of the common currency. The only exception they made was for Greece, which was delayed for two years while Goldman Sachs did their swindling on the data to get that nation into the game.

The lies continue.

Convergence is not a word one uses when considering the Eurozone. Divergence is more the point.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.