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Greece’s Sisyphean drama: From Grexit to exit to the markets?
by Theodore Pelagidis
Wednesday, May 2, 2018
On Friday, April 20, senior officials representing the International Monetary Fund, the European Stability Mechanism, and the European Central Bank as well as key eurozone finance ministers met to discuss Greek debt-lightening as well as to decide what to do with post-bailout Greece. Then, on April 27, the Eurogroup convened in Sophia, Bulgaria, to discuss rules for post-program surveillance and the next steps for official sector involvement (OSI), the technical term for debt relief involving the public sector. Prior to taking any post-program surveillance and OSI decisions, the Eurogroup reassured creditors that Greece will first be required to fulfill outstanding prior actions as stipulated in the ongoing third program. With 88 prior actions remaining, the program is far from complete and the timetable ahead is extremely tight.
Greek Finance Minister Euclid Tsakalotos, in an April 27 interview with the Financial Times, admitted that, once the post-bailout period begins after August 20, 2018, “EU monitoring missions would probably be more frequent than the twice-yearly assessments that are standard in post-bailout countries. It is likely to be a case of three or four visits instead of two.” In other words, in exchange for OSI, surveillance will be enhanced to confirm that reforms continue. Tsakalotos is actually at odds with Prime Minister Alexis Tsipras who talks about a “clean exit,” meaning a post-August 2018 period without any creditor-dictated obligations or conditions applicable to the country and his government in particular.
Clearly, a new hybrid-agreement orchestrated by the European Stability Mechanism, European Central Bank, European Commission, and IMF to supervise Greece after August 2018 is emerging. Its aim is to ensure that either the current or the next government(s) complies with the rules. One other thing is certain: This time the terminology has to change. Nobody wants to hear again words like austerity, memorandum, a new bailout, nor do they want to read opinion article about how costly program failures are hurting European taxpayers.
As for the way forward, the current Shakespearian drama involves two options that once again place Greece again between Sculla and Harybdis, or rock and a hard place. The least onerous, called the “French key” ...
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http://balkaneu.com/the-french-key-for-greek-debt/index.html
The "French key" for Greek debt
By Giannis Agouridis /
Published on: 25-01-2018, 14:48
[IMAGE] IMF_Greece-1
Talks over the Greek debt issue are underway. The Greek government is aiming at a clean exit from the bailout program in August 2018, the IMF is again starting to raise the issue of further Greek debt relief, while some European circles that used to be influenced by W. Schaeuble are trying to connect medium term debt relief measures to some kind of deliverables.
In any case, the so-called "French key" that has been proposed is a plan that is already being designed and seems to constitute a system linking the level of annual debt repayments to annual GDP growth. In practice, the logic of the proposal is that annual debt servicing obligations will fluctuate according to the strength and performance of the Greek economy.
Holistic growth program
On the basis of what we know so far, the IMF maintains its estimated 1% GDP growth per year in the long term, while the Eurozone expects long-term growth to hover around 2%. This discrepancy causes the difference of opinion manifested in terms of Greek debt sustainability and how it will be serviced. The French proposal seems to reconcile the differences by “boosting” growth, when necessary, and this is why the Greek side must design a “holistic program for growth”, according to the conclusions reached at the last Eurogroup meeting. As Finance Minister Euclid Tsakalotos stated: “If growth figures are disappointing, a greater debt relief could be offered. If growth rates are better than expected, the mechanism will not activated” The growth program would “guarantee” the growth of GDP in coming years via the use of national and community funds, if necessary. The question is how it will be structured, as well as how it will be “received” by European partners and the IMF./IBNA
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... is linked to future nominal growth rates with debt payback tranches; the hard one links gradual debt relief with conditionality measures—in other words, more reforms. The second now looks more likely. Meanwhile, the IMF is pushing for more upfront and unconditional debt-lightening, being rather skeptical of both the European Commission/French gradual approach and the German/Dutch conditional debt relief. This IMF position further complicates the state of play.
In a nutshell, this time everyone needs to project some degree of satisfaction, for three reasons:
o With European elections set for May 2019, eurozone politicians need to tell voters that the Greek program has at last succeeded.
o The Greek Syriza radical left government needs to signal to voters that an exit to the markets is feasible—i.e., clean exit—and the time to leave behind austerity has come (in fact the government is organizing a party in Syntagma Square to celebrate the “markexit”—proof that at least populism in my country entails some fun).
o Last but not least, the IMF needs to convince the world that it can always play a constructive and critical role, even as a watchdog, since it chose to opt out of the third bailout program.
A credit line to support the country to borrow from the markets at lower rates is now definitely excluded. Securing such an option would require passage by numerous eurozone national parliaments, something currently not viable. That would be like confessing that even the third bailout program was a failure.
Since the only game in town is for all players to go through the motions of a clean exit—what remains is to identify a magic formula to bridge the differences among creditors regarding key longer-term parameters. These include as agreement on trend growth rates and primary budget surpluses, which will determine debt sustainability. It is critical for the accord to signal to markets that the level of OSI will allow Greece to borrow at a rate that will not lead to unsustainable debt in the future.
The IMF’s latest World Economic Outlook trimmed the forecast for Greece’s growth, now projecting the economy to expand by 2.0 percent in 2018, down from 2.6 percent in an earlier forecast. Inflation is projected at around 0.7 percent in 2018 rather than 1.3 percent forecast earlier. Growth projections until 2022 are less than 2 percent. It is now clear that the Greek economy, despite 10 years of depression, cannot expand significantly. Growth rates are particularly anemic and certainly insufficient to generate new jobs, higher incomes, and make debt sustainable in the long-term.
Last week also, Poul Thomsen, director of the IMF’s European department accepted that sky-high taxes have hit growth rates. ...
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BUSINESS 20.04.2018
IMF’s Thomsen proposes broadening the Greek tax base
[IMAGE] thomsen-imf-thumb-large
Poul Thomsen, director of the International Monetary Fund’s European department, on Friday spoke in favor of a broadening Greece’s tax base though he stopped short of determining whether the IMF would call for reductions to the tax-free threshold (due to come into effect in January 2020) to apply a year in advance.
Speaking in Washington, where the IMF is holding its Spring Meetings, Thomsen said that raising taxes had played a large part in the country’s fiscal adjustment in recent years but that Greece must find a way of meeting fiscal targets that is “growth-friendly.”
The IMF will not impose any specific policies, he said but proposed a “discussion” about the timing of tax reforms.
As regards the Fund’s potential role in Greece’s third international bailout, which expires in August, he said at least one bailout review must be carried out before a decision can be made as well as agreement to lighten Greece’s debt. “Time is running short for us to be able to activate the program,” he said.
A discussion on debt measures is likely to take place at the next meeting of eurozone finance ministers, scheduled for April 27 in Sofia. Talks there will also focus on a growth plan that the government has presented to bailout auditors.
Finance Minister Euclid Tsakalotos on Friday met in Washington with European Economic and Monetary Affairs Commissioner Pierre Moscovici, Eurogroup Chairman Mario Centeno and European Central Bank President Mario Draghi and is to meet Thomsen and IMF chief Christine Lagarde on Saturday.
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... Meanwhile, Managing Director Christine Lagarde said that public expenditures have been radically reduced to meet (and exceed) the targets of the program, ...
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http://www.keeptalkinggreece.com/2018/04/20/imf-lagarde-greece-additional-measures/
[IMAGE] lagardeimf1-660x330
“IMF never asked additional spending cuts in Greece,” claims Lagarde
April 20, 2018 Economy
Despite deep cuts having been made in state spending in Greece, the International Monetary Fund’s (IMF) managing director Christine Lagarde has claimed that it wasn’t on account of the Fund.
Speaking to reporters on Thursday in Washington DC, where she is taking part in meetings between the IMF and Washington Group, she said the IMF never asked Greece to make additional cuts in recent times, rather stating that the country had exceeded their expectations.
==
Katerina Sokou
@KaterinaSokou
Lagarde on Greece: After 8 years of difficult political implementation, there is progress as a result, for instance markets much more favorable. Some drastic measures were not with our advice, further structural reforms needed, not over yet but IMF committed to continuing support
4:10 PM - Apr 19, 2018
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She did not elaborate what she meant with ‘recent times’ which is a broad and very vague time description. Nevertheless, last time, the IMF demanded and succeeded to impose additional austerity measures on Greece was in late spring 2017. The Fund demanded additional austerity measures worth 2.2 billion euros to be implemented in 2019 and 2020. With the help of Schaueble, the IMF put the knife on Greece’s neck to accept the additional demands otherwise risking to have the second review of the European lenders’ program not concluded.
The measures are to be activated through an automatic fiscal mechanism, a so-called “cutter”, in case Greece would fail to meet the fiscal targets.
These measures are:
1. Broadening the tax-free basis thus taxing the poor with annual income below 6,000 euro, as the EU poverty line has been set
2. Further pension cuts
Yesterday, Lagarde did restate the IMF’s continued recommendation to Greece however, to continue with structural reform.
When asked about whether the Fund would be active in Greece’s post-bailout phase, Lagarde said:
[IMAGE] SPRING MEETINGS 2018 - WASHINGTON DC -
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Katerina Sokou
@KaterinaSokou
Lagarde, responding to @mignatiou @MignatiouCom, sends a message to the Europeans ahead of debt relief discussions. Responding on what will the IMF do so that Greece can see light at the end of the tunnel, she said that they will do whatever they can within their mandate.
4:28 PM - Apr 19, 2018
Meanwhile, Eurogroup chief Mario Centeno, who is also in Washington, quashed any rumours of Greece extending its bailout program by two months, clarifying that Greek authorities are focused on exiting the program. ...
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Facebook Twitter: @NeosKosmos Instagram
NEWS / GREECE
The IMF never asked for additional spending cuts in Greece, says Lagarde
According to the Managing Director of the IMF, Greece's fiscal performance has recently exceeded expectations
20 April 2018 5:21pm
Despite deep cuts having been made in state spending in Greece, the International Monetary Fund’s (IMF) managing director Christine Lagarde has revealed that it wasn’t on account of the Fund.
Speaking to reporters on Thursday in Washington DC, where she is taking part in meetings between the IMF and WB Group, she said the IMF never asked Greece to make additional cuts in recent times, rather stating that the country had exceeded their expectations.
She did restate the IMF’s continued recommendation to Greece however, to continue with structural reform.
When asked about whether the Fund would be active in Greece’s post-bailout phase, Ms Lagarde didn’t comment.
Meanwhile, Eurogroup chief Mario Centeno, who is also in Washington, quashed any rumours of Greece extending its bailout program by two months, clarifying that Greek authorities are focused on exiting the program.
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PS Lagarde does not only have the talent to refrain from truth without blushing. She can also speak Greek. She greeted one of the Greek reporters at the presser with “Kalimera.”
The busy and skilled IMF Managing Director had managed to learn one Greek word in eight years.
As a friend commented on Twitter: Lagarde learned one letter per year!
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... a development she said was not attributable to adherence to IMF advice—rather it was a policy choice of the Greek government. After all, one is wondering why Greece was really under close supervision over the past three years and at the same time the Greek government enjoyed some free space in fiscal policy (which, by the way, for a radical left government, was surprisingly austere). Keep in mind that primary surpluses for 2016 and 2017 rocketed to 4 percent and 4.2 percent respectively, thanks to sky-high taxes and social security contributions.
On the same note, Greece’s January-March 2018 primary budget was 2.3 billion euros, more than 1.2 billion above expectations, thanks in part to lower-than-forecast public investment. In contrast, for January and February 2018, overdue private debt increased by 2.6 billion euros. Which brings us to the core of the problem that the institutions and creditors seem to (or pretend to) ignore: Large primary surpluses bankrupt the private economy and dampen growth rates. The country’s 2 billion euro current account deficit in January and February 2018 further supports this point. Investments are less than capital depreciation—now only 11 percent of GDP—which is the worst number in eurozone. As a result, productivity keeps worsening.
So, yes, what is needed right now is maybe some more “financial engineering” of the debt profile to match these developments. More importantly, one has to see what tax burden the country can bear given its situation, taking into consideration the need to encourage new investment.
Part of what makes the debt workout so dysfunctional is that nobody talks about the fallout on taxpayers and on the country’s investment prospects during high stakes financial meetings about Greece’s future.
In this context, Greece is again between Sculla and Harybdis as it is condemned to inadequate growth rates that will always neutralize or cancel any temporary debt-lightening arrangements. For a real clean exit, one would expect the adoption of real measures to tackle heavy taxation and dis-investment instead of strangling the real economy to meet an unrealistic 4.2 percent primary surplus.
Yet these measures may not yet have the support of key EU protagonists, as an April 23 tweet by Valdis Dobrovskis, the EU Commission’s vice-president for the euro and social dialogue and official in charge of financial stability, financial services, and capital markets union made clear:
==
Valdis Dombrovskis
✔
@VDombrovskis
Positive news on #Greece: new #Eurostat data show that Greece has again outperformed its fiscal targets. In 2017, the primary surplus in programme terms has reached 4.2% of GDP instead of 1.75% of GDP target. Good news in the view of the programme conclusion in August!
3:51 PM - Apr 23, 2018 · Manhattan, NY
==
To conclude, debt sustainability comes only when nominal growth is strong. This, in turn, is an output of permanently high investments rates and low taxation. Only after that will high primary surpluses arise naturally as a consequence of growth. It’s economics 101.
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( English ) the StatCounter was installed on 2018-05-07, 17:30 p.m. GMT
( Greek ) ( Ελληνικά ) Ο μετρητής εγκαταστάθηκε την 07-05-2018 19:30 μ.μ. ώρα Ελλάδας
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