Just a very quick and unstructured note on Greece. There is lots of confusion under the sky, and it seems to me that creditors are today advancing in sparse order.
Yesterday something rather upsetting happened, as the Eurogroup suspended bailout payments because Greece engaged in some extra expenditures. These are mostly targeted to pensioneers and to the Greek islands that had to endure unexpected costs linked to the refugee crisis. Unexpectedly, the Commission is siding with Greece, with Pierre Moscovici arguing that the country is on target, and that its effort has been remarkable so far. In fact, I have understood, Greece is doing so well that it overshot the target of structural surplus for 2016, and it it these extra resources that it is engaging in order to soft the impact of austerity.
And then there is the IMF, accused by Greece of pushing for more austerity, is also under attack from EU institutions (Eurogroup and Commission) for its refusal to join the bailout package. The Fund has hit back, in a somewhat irritual blog post signed by Maurice Obstfeld and Poul Thomsen (not just any two staffers) and seems not to be available to play the scapegoat for a program that in their opinion was born flawed. In fact, I think that more than to Greece, Obstfeld and Thomsen have written with the other creditors in mind.
I have two considerations, one on the economics of all this, one on the politics.
- I think I will side with the IMF on this. At least with the recent IMF. Since the very beginning The IMF has dubbed as irrealistic the bailout package agreed after the referendum of 2015 . The effort demanded to Greece (the infamous 3.5% structural surplus to be reached by 2018) was recognized to be self-defeating, and the IMF asked for more emphasis on reform, with in exchange a more lenient and realistic approach to fiscal policy: debt relief and much lower required suprluses (1.5% of GDP). In other words, the IMF seems to have learnt from the self-defeating austerity disaster of 2010-2014, and to have finally an eye to the macroeconomic consistency of the reform package. I still believe that the bailout should have been unconditional, and require reforms once the economy had recovered (sequencing, sequencing, and sequencing again). But still, at least the IMF now has a coherent position. Moscovici’s FT piece linked above also seems to go in the same direction, arguing that nothing more can be asked to Greece. It falls short of acknowledging that the package is unrealistic, but at least it avoids blaming the country. And then there is the Eurogroup, actually, Mr Dijsselbloem and Schauble (let’s name names), that did not move an inch since 2010, and fail to see that their demands are slowly (?) choking the Greek economy, stifling any effort to soften the hardship of the adjustment.
- The political consideration is that the hawks still give the cards, as they dominate the eurogroup. But they are more isolated now. Evidence is piling that the eurozone crisis has been mismanaged to an extent that is impossible to hide, and that the austerity-reforms package that the Berlin View has imposed to the whole eurozone is a big part of the explanation for the political disgregation that we see across the continent. The more nuanced position of the Commission, the IMF challenge to the policies dictated by the hawks, therefore represent an opportunity. There is a clear political space for an alternative to the Berlin View and to the disastrous policies followed so far. The question is which government will be willing (and able) to rise to the occasion. I am afraid I know the anwser.