World view

Gwynne Dyer takes look at Greece and IMF.

Cape Breton Post - - CAPE BRETON - Gwynne Dyer Gwynne Dyer is an in­de­pen­dent jour­nal­ist whose ar­ti­cles are pub­lished in 45 coun­tries.

In the­ory, it could still work. It only re­quires three mir­a­cles.

Maybe the re­sound­ing “no” to the eu­ro­zone’s terms for a third bail-out in Sun­day’s ref­er­en­dum in Greece (61 per cent against) will force the euro cur­rency’s real man­agers, Ger­many and France, to re­con­sider. French Pres­i­dent Fran­cois Hol­lande is al­ready ad­vo­cat­ing a re­turn to ne­go­ti­a­tions with Greece.

Maybe the In­ter­na­tional Mon­e­tary Fund will pub­licly urge the eu­ro­zone’s lead­ers to can­cel more of Greece’s crush­ing load of debt. Last Thurs­day the IMF re­leased a re­port say­ing that Greece needed an ex­tra 50 bil­lion eu­ros over three years to roll over ex­ist­ing debt, and should be al­lowed a 20-year grace pe­riod be­fore mak­ing any debt re­pay­ments. Even then, it said, Greece’s debt was “un­sus­tain­able.”

And maybe Greek Prime Min­is­ter Alexis Tripras will ac­cept the terms he asked Greek vot­ers to re­ject in the ref­er­en­dum if he can also get a com­mit­ment to a big chunk of debt re­lief – say around 100 bil­lion eu­ros, about a third of Greece’s to­tal debt – from the eu­ro­zone author­i­ties and the IMF. It’s all the­o­ret­i­cally pos­si­ble. It even makes good sense. But it will re­quire rad­i­cally dif­fer­ent be­hav­iour from all the par­ties in­volved.

Tsipras has al­ready made one big ges­ture: on the morn­ing af­ter the ref­er­en­dum vic­tory, he ditched his flam­boy­ant fi­nance min­is­ter, Yanis Varoufakis. The hy­per-com­bat­ive Varoufakis had need­lessly alien­ated ev­ery other eu­ro­zone fi­nance min­is­ter with his scat­ter­gun abuse, and it was hard to imag­ine him sit­ting down with his op­po­site num­bers again af­ter call­ing them all “ter­ror­ists” dur­ing the ref­er­en­dum cam­paign.

The IMF’s ges­ture was even big­ger, if much be­lated. It knew the eu­ro­zone’s strat­egy was wrong from the time of the first bail-out in 2010, and it is fi­nally get­ting ready to ad­mit it.

There was no debt re­lief at all in the 2010 bail-out, and only pri­vate-sec­tor cred­i­tors were forced to take a “hair­cut” (around 30 per cent) in the sec­ond bail-out in 2012. Most of Greece’s debt was owed to Ger­man and French banks, and that wasn’t touched. In­deed, 90 per cent of the eu­ro­zone loans Greece has re­ceived go straight into re­pay­ing Euro­pean banks.

Why didn’t the IMF blow the whis­tle on this long ago? Be­cause it was not tak­ing the lead in these ne­go­ti­a­tions, and af­ter it took part in the 2010 bail-out any­way it was deeply em­bar­rassed. It had bro­ken its own rules, and found it hard to ad­mit it. It was also aware that de­val­u­a­tion, usu­ally a key part of IMF bail-outs, is im­pos­si­ble for Greece un­less it ac­tu­ally leaves the euro (which Greeks des­per­ately don’t want to do).

So the usual post-bailout eco­nomic re­cov­ery didn’t hap­pen. Over five years Greece’s debt has in­creased by half, its econ­omy has shrunk by a quar­ter, and un­em­ploy­ment has risen to 25 per cent (50 per cent for young peo­ple). The ref­er­en­dum ques­tion was de­lib­er­ately ob­scure and mis­lead­ing, but most Greeks know that the cur­rent ap­proach sim­ply isn’t work­ing. That’s why they voted “no” in the ref­er­en­dum. It was a valid choice.

If the eu­ro­zone author­i­ties know that much of Greece’s debt can never be re­paid (which they do), why don’t they just give Greece the debt re­lief it needs? Partly be­cause Chan­cel­lor An­gela Merkel knows that her own Ger­man vot­ers will be an­gry at more “char­ity” funded by their taxes, whereas they stay fairly quiet so long as the debt is still on the books. And partly be­cause other eu­ro­zone coun­tries would see it as spe­cial treat­ment for Greece.

Italy, Spain, Por­tu­gal and Ire­land have also been through har­row­ing bail-out pro­grammes, and are still mak­ing pro­por­tion­ally big­ger in­ter­est pay­ments on their debts than Greece. Some other coun­tries us­ing the euro – Es­to­nia, Por­tu­gal, Slo­vakia and Slove­nia – have about the same GDP per capita as Greece, and Latvia is even poorer.

They don’t see why they should pay for Greece’s folly in run­ning up such huge debts.

So it re­ally isn’t pos­si­ble to pre­dict whether Tsipras and Greece will be of­fered a bet­ter deal or not. It’s equally im­pos­si­ble to say what will hap­pen to the euro “sin­gle cur­rency” if there is no deal and Greece crashes out of the euro in the next cou­ple of weeks, although the eu­ro­zone author­i­ties in­sist that they could weather the storm.

We do live in in­ter­est­ing times.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.