The IMF Comes Clean on Greece
Years too late, the fund tells the truth about Athens and bailouts.
Now they tell us. The International Monetary Fund released a set of reports this week on Greece’s bailouts in 2012 and 2015. The verdict: Greece can’t be fixed by foreign technocrats bearing cash until Greek politicians, supported by their voters, elect to fix themselves.
The belated awakening sets the stage for another Greek crisis, perhaps as early as this summer.
Not that anyone should be surprised. It’s been clear for years that Greek voters don’t have the stomach for major reforms. They reminded creditors of their views in January 2015 when they elected the far-left euroskeptic Syriza party of Alexis Tsipras. As if to underline the point, Mr. Tsipras keeps trying to prosecute for treason Andreas Georgiou, the government statistician who first fixed Athens’s fiddled books and exposed its fiscal crisis in 2010—as if Greece’s only mistake was to follow European accounting rules.
That reality seems to have been lost on Berlin and other creditors, who have repeatedly tried to pretend that maybe reform would be possible anyway under the auspices of a technocratic bailout memorandum. The IMF is now saying this strategy is exhausted.
The fund’s report on Greece’s 2012 bailout notes that Athens managed briefly to bring its finances into line with targets via deep spending cuts and steep tax hikes. Yet neither the IMF nor anyone else prevailed on Greece to implement the supply-side reforms, such as privatizations and pension overhauls, that creditors keep demanding. So growth has frequently missed targets and crises recur whenever investors get nervous at signs Athens is reneging on its deals.
The IMF sensibly refused to join the 2015 bailout, amounting to €86 billion ($92.03 billion). But Berlin continues to insist the fund must eventually sign on to the deal because Germans don’t trust Brussels to impose reform discipline on Athens. Other creditors agree, notably the Netherlands, where Finance Minister Jeroen Dijsselbloem warned Wednesday that the IMF’s withdrawal could scupper the bailout. With the IMF absenting itself, those governments will have to decide whether to continue unlocking tranches of that package, including money Athens will need to avoid defaulting on debt repayments this summer.
Technically this is a difference of opinion about what level of fiscal surplus and debt relief is manageable for Athens. Germany, the Netherlands and other EU creditors demand that Greece achieve a primary budget surplus of 3.5% of GDP and wait for several years to negotiate more debt relief.
The IMF says those targets are implausible, to put it kindly, and will participate in the new bailout only if creditors accept a surplus of 1.5% of GDP and immediately forgive some of a debt burden amounting to 180% of GDP.
But the real question is whether any economic forecasts and budget assumptions matter when nobody wants to address political reality. Dutch, German and other Northern European voters have to decide how much they’re prepared to subsidize an unreforming Greece for the political goal of keeping the eurozone intact. With elections this year in several creditor countries, especially the Netherlands and Germany, Europe may finally get the crisis it has needed all along: the moment when European taxpayers vote on what they’re willing to pay to preserve the currency bloc.
As for Athens, it’s a shame that the country that gave us the concept of tragedy must learn anew how often it is self-inflicted. The IMF’s reports are a reminder that the remedy for Greece’s agonies lies in Greek hands.