Mirage in an endless desert

I took another look at the comments made by a International Monetary Fund official to correspondents in Washington during a briefing that followed Monday’s Eurogroup meeting in Brussels, and I was surprised at the way they had been interpreted by some Greek journalists. The IMF is clearly saying that a primary surplus of 3.5 percent is not politically or socially sustainable. The Washington-based institution also holds that the rule would have a very negative impact on Greece’s economic growth. So why all the headlines portraying the IMF as the bad guy pushing for extra austerity measures? The explanation is simple. Northern European governments do not want to grant Greece debt relief that would also entail a reduction in primary surpluses (and the loosening of the fiscal straitjacket imposed on Greece). In response, the IMF says, “If you want such big surpluses, then Athens must agree to stricter measures.” It’s a complete deadlock. Are the Europeans likely to back down? Not really. Wolfgang Schaeuble, Germany’s finance minister, likes to stress that in the summer of 2015 there was an agreement on 3.5 percent surpluses for the next 10 years and that he did his Greek counterpart a special favor by making a vague commitment to renegotiate the time frame. A pledge to grant Greece debt relief could be politically damaging in countries such as Germany and the Netherlands, both of which are entering election periods. At first glance, the IMF is on Greece’s side. Of course conspiracy theorists believe that the Fund is collaborating closely with Germany’s finance minister, pushing things to the limit, so that at some point Greece will wonder whether there is any point in staying in the eurozone on such harsh terms. Many people in Berlin and at the Fund’s headquarters believe Greece should agree to a velvet divorce that the German minister suggests whenever he gets the chance. No government, whether the current one or the next, has any chance of surviving in this straitjacket. Even a Kyriakos Mitsotakis-led administration capable of following a shock reform-growth policy would hit the same wall, unless it was able to pre-agree to a deal that would see it pass certain shock reforms in exchange for securing lower surpluses. Perhaps it is no coincidence that a final debt relief arrangement is expected in 2018. One way or another, that’s when we’ll find out whether this is a mirage in an endless desert or a cleverly placed motive for the next relay runner.