So Now Greece Is Blaming The IMF And The European Commission For The Debt Problems

6/5/2015

Βy Tim Worstall

This is a quite lovely variation in negotiating tactics. Greece is now saying that it’s really the International Monetary Fund and the European Commission that are causing all the problems in the negotiations towards a debt deal. Although more accurately what is actually being complained about is that the combination of the two will not let Syriza do as they wish. Which, when you’re playing with other peoples’ money is a reasonably fair thing for those other people to insist upon. That their concerns carry some weight. It’s also quite obvious why the two groups are making the sort of demands that they are. The EU has to explain (or at least the member governments do) to the electorate what they’ve done with their money. The IMF doesn’t and is thus able to take a different view of the potential solution.

Here’s one report:

Greece’s embattled government has blamed a schism within its creditor powers for the three-month bail-out impasse which risks throwing the country out of the eurozone.

In a government paper, Athens said “serious disagreements and contradictions” between the International Monetary Fund and its European partners were preventing the country coming to a long-awaited agreement to extend its bail-out programme.

Specifically:

“Serious disagreements and contradictions between the IMF and European Union are creating obstacles in the negotiations and a high level of danger,” said a senior government source.

The official added that both lenders were digging in their heels on divergent issues, effectively enforcing “red lines everywhere”. While the IMF was refusing to compromise on labour deregulation and pension reform but was relaxed on fiscal demands, the EU was insistent that primary surplus targets be met while being much more conciliatory about structural changes.

The official insisted: “In such circumstances, it is impossible to have a compromise. The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them”.

As a piece of buck passing that’s really quite masterly. We, the Greeks, we really want to be good guys and make a deal but those beastly foreigners just won’t let us!

There’s a translation of the leaked document here:

The difference of strategy, however, between the institutions is creating obstacles.

The IMF puts its red lines on the reforms, especially on pension and labour reforms, while it has loose lines on the topic of the primary surplus. On the back of the mind of the IMF lies the thought of debt write off, so that this can be rendered sustainable.
On the contrary, the European Commission has red lines on the topic of the primary surplus, and consequently, on the issue of not cutting the debt, and loose lines on tough reforms, such as those regarding pensions and labour relations.

And that’s an interesting divergence of opinions. The IMF is concentrating upon the supply side reforms that it thinks need to happen in the Greek economy. And accepting that the debt burden isn’t going to be repaid so, what the hack, let’s give it a haircut. All of which is fairly usual IMF advice in these situations. It’s also probably the sensible economic solution to the problem.

However, the EU is rather more hemmed in by politics (there’s a good reason why the IMF is hived off to be independent of the governments that fund it and this is it). The other eurozone governments are well aware that their own citizens (and thus voters) are in no mood to let the Greeks have lots of their money. This can be, in fact has been, rather hidden by the extension of the maturity of the current loans, the low interest rates and so on: these all lose money for the other eurozone taxpayers. But that’s not quite the way that people see it. Instead, the electorates’ attention is on the total sum of the debt. And a haircut on that total would immediately be shouted up by domestic politicians as a squandering of the nation’s cash on those feckless Greeks.

Whether it’s true or not doesn’t matter: it’s simply not politically possible for the German government to turn around to the German electorate and say “Well, you know what? We just lost €30 billion* of your money on the Greeks.” Nor is it possible for the smaller and poorer than Greece Slovenia to say the same to its own electorate. Nor most of the other eurozone governments in proportion to their exposure to that potential debt haircut.

And Syriza is in no mood at all to agree to both sets of demands: buckle down to those supply side reforms and also make sure you run the large primary surplus to pay back the debt.

It’s not looking good for the prospects of a deal when one side is already working hard to apportion blame for one not happening, is it?

* A made up number but not too far off the German share of a haircut that would actually solve the problem.

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