This article in The Economist outlines the current deadlock over the second review of the third bailout of the country of Greece. The continuation of “Greek debt dramas” is continuing to exasperate the European community. Last week, European creditors were working to close the review, which would allow them to lend Greece the funds it needs to meet $6.7 billion in bond repayments (due in July). Unfortunately, talks have run aground. The International Monetary Fund has yet to join the bailout (it did for the last two), and is pressuring Greece to pass tax and pension reforms worth 2.5% of GDP, which would kick in after the bailout expires. The left-leaning Greek government will have an extremely difficult time getting these austerity measures through parliament; the country has already faced a number of protests from farmers and unions. Furthermore, the conditions attached to the bailouts drastically reduce government control over economic policies. The IMF has good reason to hesitate before jumping into another bailout; it has seen Greece consistently fail to meet previous targets and has little faith in the country. Moreover, European governments are insisting on IMF participation in the bailout before they get involved, effectively granting the IMF veto power.
Ultimately, the IMF doesn’t think the country can sustain the primary-surplus target of 3.5% by 2018. GDP has shrunk by over one quarter since 2008, nearly 25% of the workforce is jobless, and more than ⅓ of children are poor or nearly poor. Although the article does not elaborate, I would be very interested to know the definition of poverty for children in Greece. Greece is also experiencing a brain drain, as young people (understandably) seek jobs and other opportunities abroad. Despite this, Europeans insist that Greece is on track, and will in fact meet the objectives set by the IMF. The article also explains that Greece is unable to devalue its currency, as it has in the past, and is instead forced down the path of internal devaluation and austerity. Overall, this deadlock is not as serious as 2015, when Greece came close to being ejected from the euro, but it is an example of the problematic bailout architecture. Personally, I do not blame the IMF for airing on the side of caution when it comes to the Greek economy. Clearly something needs to be done, but insisting on stricter and more intense bailout targets is ineffective. What is the solution?
"Greece's Creditors Are Now the Main Impediment to Solving the Country's Woes." The Economist. The Economist Newspaper, 18 Feb. 2017. Web. 21 Feb. 2017.
http://www.economist.com/news/europe/21717043-biggest-difference-now-between-imf-and-europeans-greeces-creditors-are-now-main
2 comments:
This is a really complex and difficult situation. I can see how politically, the measures the IMF wants Greece to pass would be hard to push through. However, if Greece is seeking a bailout-they really have no other choice. This may be a situation where it has to get worse before it gets better. I agree, that the IMf is not crazy for wanting these conditions to be met before bail out considering Greece's history.
I read the other day that Jeroen Dijsselbloem, the head of the Eurogroup, told reporters that there had been a "clear shift" in creditor demands following a meeting of finance ministers in Brussels on Monday. Yields on Greek government bonds fell sharply after he announced that representatives from the European Commission and International Monetary Fund would return to Athens to thrash out an "additional package of structural reforms" to support long term growth and debt sustainability. I agree with Emily, it'll be interesting to see if this will be a situation that has to worsen before it gets better.
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