Ex­clud­ing IMF is no panacea for Greece

Athens seized upon Schaeu­ble’s com­ments, but not hav­ing Fund on board poses nu­mer­ous dif­fi­cul­ties

Kathimerini English - - Focus - BY NICK MALKOUTZIS

ANAL­Y­SIS The Greek gov­ern­ment could barely con­tain its ex­cite­ment on Fri­day, when it re­acted with con­sid­er­able speed to com­ments by Ger­man Fi­nance Min­is­ter Wolf­gang Schaeu­ble, who floated the pos­si­bil­ity of the coun­try’s bailout con­tin­u­ing with­out the In­ter­na­tional Mon­e­tary Fund.

The re­sponse from Athens was that if the IMF is out of the pic­ture, the re­view which has been drag­ging on since last year will be con­cluded al­most overnight and with­out the need for any new mea­sures to be leg­is­lated. It is no sur­prise that the SYRIZA-In­de­pen­dent Greeks ad­min­is­tra­tion was taken by the idea of the IMF be­ing ex­cluded from the pro­gram. Many gov­ern­ment of­fi­cials, in­clud­ing Prime Min­is­ter Alexis Tsipras, have sug­gested in pre­vi­ous months that life would be much eas­ier if the Fund with­draws as there would be no need to dis­cuss aus­ter­ity mea­sures that Athens has de­scribed as “il­log­i­cal.”

The think­ing ap­pears to be that if the IMF is left out, the swift con­clu­sion of the re­view that would – the­o­ret­i­cally – fol­low would un­lock the ben­e­fits that could flow from that (e.g. in­clu­sion in the Euro­pean Cen­tral Bank’s quan­ti­ta­tive eas­ing scheme and strong growth) and the gov­ern­ment would not be forced to ab­sorb the im­pact of hav­ing to enter a new and dam­ag­ing round of dis­cus­sions do­mes­ti­cally about un­pop­u­lar mea­sures, such as cut­ting pen­sions or re­duc­ing the tax-free thresh­old for in­comes.

One could ar­gue that this is the cor­rect path to fol­low as it removes any un­cer­tainty and gives the econ­omy a chance to re­cover. Of course, that would as­sume that the gov­ern­ment’s de­ci­sion is driven by what the coun­try’s in­ter­ests rather than its own po­lit­i­cal sur­vival in­stincts.

How­ever, we are un­likely to ever be able to form a full opin­ion be­cause it is highly im­prob­a­ble that events will play out in the way the gov­ern­ment seems to en­vis­age. Firstly, it is not clear whether Schaeu­ble’s mus­ing about the pos­si­bil­ity of the IMF be­ing left out of the Greek pro­gram and the Euro­pean Sta­bil­ity Mech­a­nism tak­ing its role is aimed at pre­par­ing pub­lic opin­ion for such an even­tu­al­ity (af­ter pledg­ing to Ger­man MPs in 2015 that the Fund would be fully in­volved) or whether he wants to pre­vent such a turn of events and keep the Wash­ing­ton-based or­ga­ni­za­tion in the group of lenders.

In his interview with the Ger­man news­pa­per Sud­deutsche Zeitung, Schaeu­ble pointed out that if the IMF is ex­cluded and the ESM takes over this would re­quire a new bailout to be drawn up and then ap­proved by Ger­man Par­lia­ment (as well as other eu­ro­zone mem­ber states’ par­lia­ments). This hardly seems like the swift con­clu­sion to the cur­rent process that Athens would like. It also raises the risk of Greece not re­ceiv­ing any bailout fund­ing in the next few months and not be­ing able to meet its obli­ga­tions in July, when the gov­ern­ment has to re­deem bonds worth 6.5 bil­lion euros and pay an­other 300 mil­lion euros to the IMF.

Schaeu­ble’s com­ments, which re­fer to the need to “sig­nif­i­cantly im­prove” the terms of Greece’s bailout, also sug­gest that Athens can for­get about the prospect of en­joy­ing an eas­ier ride if the IMF is not on board. If any­thing, the ESM mon­i­tor­ing the Greek pro­gram would give Ber­lin an even more in­flu­en­tial po­si­tion than it cur­rently has. It should not be for­got­ten that the ESM treaty means that the vot­ing rights of the mem­ber states, which are rep­re­sented on the board of gov­er­nors, is in line with the share of cap­i­tal and guar­an­tees they have pro­vided. This means that Ger­many has 27 per­cent of the vot­ing rights and veto power. The ESM’s emer­gency vot­ing pro­ce­dure, trig­gered if a con­sen­sus is not achieved, means there must be a qual­i­fied ma­jor­ity of 85 per­cent to ap­prove a de­ci­sion.

The ab­sence of the IMF would also likely sig­nal the end of any dis­cus­sion about medium- or longterm debt re­lief mea­sures, which is so politically awk­ward for Ger­many and other eu­ro­zone mem­ber states, but which the Fund has tried to keep on the agenda. There also seems lit­tle chance of this blow be­ing cush­ioned by in­clu­sion in the ECB’s QE scheme. Of­fi­cials from Frank­furt have been stress­ing re­cently that the con­clu­sion of the re­view alone will not tick the nec­es­sary boxes. The ECB also wants to be sure that Greece’s debt is sus­tain­able be­fore it starts snap­ping up Greek gov­ern­ment bonds. With­out medium-term debt re­lief, this be­comes an in­cred­i­bly hard equa­tion to solve.

In such a sit­u­a­tion, the SYRIZAled ad­min­is­tra­tion will be left pin­ning all its hopes on a fear­some eco­nomic re­cov­ery. While con­clud­ing the re­view would help re­store con­fi­dence, the coun­try’s eco­nomic prob­lems run so deep that if other fac­tors, such as more sub­stan­tial debt re­lief, QE and a let-up in fis­cal tar­gets, are ab­sent we can only re­ally ex­pect the econ­omy to sput­ter along rather than spark into life.

The dis­tance Greece has to cover be­fore its econ­omy can be con­sid­ered in good health was em­pha­sised by the em­ploy­ment data re­leased by the La­bor Min­istry’s Er­gani sys­tem on Fri­day. It showed that De­cem­ber pro­duced net hir­ings of 11,132, mean­ing that over the course of 2016 136,260 more peo­ple had been taken on than fired. This was a rise of 36.7 per­cent on the pre­vi­ous year’s fig­ure and the high­est an­nual read­ing since 2001.

On the sur­face, things ap­pear to be head­ing in an en­cour­ag­ing di­rec­tion. How­ever, closer in­spec­tion of the data re­veals that there is plenty to be cau­tious about. More than half (54.7 per­cent) of the 2.1 mil­lion hir­ings made in 2016 were for flex­i­ble, rather than full-time work. Also, the kind of sec­tors pro­vid­ing jobs do not sug­gest that a ro­bust re­cov­ery is in the mak­ing. The food ser­vice and re­tail sec­tors, for in­stance, were among the ma­jor job cre­ators, pro­vid­ing nei­ther longer-term se­cu­rity for em­ploy­ees or too much added value for the Greek econ­omy. In De­cem­ber, the cat­e­gory that pro­vided the most jobs was “Mu­si­cians, singers, dancers and other artists.” It is not the stuff that flour­ish­ing economies are made of.

There are many spe­cific rea­sons, as well as an over­ar­ch­ing one, to be skep­ti­cal about the speed and en­thu­si­asm with which the Greek gov­ern­ment re­sponded to the mere hint by Schaeu­ble that the bailout could con­tinue with­out the IMF. The Fund, as it has ac­knowl­edged it­self, has got many things wrong in Greece and should not be free of scru­tiny or doubt, but the idea that re­mov­ing it from the pic­ture will solve ev­ery­thing does not stand up to even a cur­sory in­spec­tion. There can be only one re­sponse to those who ar­gue the op­po­site: Not so fast.

In De­cem­ber the cat­e­gory that pro­vided the most jobs was “Mu­si­cians, singers, dancers” – not the stuff that flour­ish­ing economies are made of.

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