The EU’s deaf ears on Greece

Greece is in the financial headlines again. The IMF, which with the EU is part of the $86 billion debt bailout, has just concluded that at the current rate of progress, there is no way that Greece can get its finances back under control. On the current “explosive” path, the IMF is predicting that Greek debt will have reached three times the national product by 2060, a position it describes as completely unsustainable. Under the debt rescheduling agreed between the IMF and the EU after the EU had bought out most of Greece’s creditors, Athens has to cut state expenditure for jobs and support for state industries while boosting revenues by selling off the large portfolio of state-owned assets and just as importantly, finally introducing a transparent and incorruptible tax collection system. Yet now the IMF has come to the view that these Draconian measures are not going to work. It has concluded that the Greek economy cannot cope with the fiscal demands that are being placed on it by Europe, its largest creditor. It wants substantial debt relief to be part of a new debt rescheduling which aims to be concluded next year. The greatest part of that writing off of debt would fall upon the Europeans. The EU representatives at the IMF have rejected the findings of the organization’s officials saying that they represented a “bleak” and “outdated” view of the Greek economy. It is easy to suspect that there is an element of special pleading here. The Europeans do not want to take a multi-billion dollar loss on the Greek debt they hold. So it would be better to talk up the Greek economy and insist that it can bear the strain of the tight fiscal controls that Brussels has imposed. Indeed there are some German politicians who believe that the Greeks are still shirking their agreement to cut expenditure and boost revenues. The IMF was once the global financial hard man, insisting that struggling economies, mainly in Africa, adopt Western-style capitalist economics, regardless of the often extremely painful social cost this produced. But with Greece, the Washington body is taking a more realistic and some would say more conciliatory line. It is the EU that is in effect playing hardball by insisting that Greece sticks to its financial commitments and insisting also that they are not unreasonable and can be met. It was, of course, Brussels that also insisted that in 2001 the Greek economy was in a fit state to allow it to be the twelfth country to join the Eurozone. Having fudged the entry requirements for foundation members Belgium, France and Italy, it was not a great stretch to welcome Greece to the single currency. Apparently, nobody had noticed that Athens had already been cooking the books to minimize its already alarming debt levels. The euro was driven by the political imperative of greater integration among EU states. A single currency would inevitably lead in time to a single finance ministry as part of a single EU government. It is almost certainly politics that is now driving the insistence by Brussels that Greece can bear its current financial pain and is on the road to recovery. It will not countenance a Eurozone failure and the departure of one of its member countries. Therefore, it simply does not want to hear what the IMF has to say.