by
Jack Rasmus
In August
2015, after eight months of intense negotiations with Europe’s
Troika financial institutions — the IMF, European Central Bank, and
European Commission — the Greek Government capitulated to the
Troika’s demands imposing more austerity on its people in exchange
for another $98 billion in additional loans.
The $98
billion did not represent economic assistance to Greece, to stimulate
its economy, but was earmarked almost exclusively to pay back
interest to the Troika, Europe banks, and Europe investors for prior
loans made to Greece in 2012, 2010, and before. But while the Greek
people would see little real benefit, they would have to pay the
price. In exchange for the $98 billion in new credit, the August 2015
debt restructuring deal required Greece to even further cut pensions,
axe more government jobs and cut wages, raise taxes, accelerate the
sales of public works (ports, airports, utilities, etc.) to private
investors, and to in effect turn over Greek banks to the Troika and
its northern Europe banker and investor friends.
To ensure
Greece would not renege on the August 2015 deal, it would now also
have to submit to vetoes by Troika representatives sent to Greece to
oversee virtually all policy decisions made by Greece’s
democratically elected Parliament or local governments. The Troika
last year thus tightened its grip on Greece both politically and
economically to ensure it would receive debt payments from Greece no
matter how harsh the austerity terms.
The Greek
government may have thought it had a debt deal, albeit a dirty one,
last August 2015; but recent developments are now beginning to reveal
it was only temporary.
Worse is yet
to come.
The Troika
grip on Greece is about to tighten still further, as revelations in
recent weeks show Troika plans to renege on last year’s terms and
demand even more draconian austerity measures. Leading the Troika
attack on Greece once again is the the IMF, one of the Troika’s
three institutional partners.
IMF
Secret Plans to Impose Further Austerity on Greece
On April 2,
2016, WikiLeaks released transcripts of a secret teleconference among
IMF officials that occurred on March 19. In it, leading IMF directors
expressed concern that discussions between Greece and the IMF’s
Troika partner, the European Commission, on terms of implementing
last August’s deal were going too slowly. The Eurozone and Greek
economies have been deteriorating since last August. Still more
austerity would thus be needed, according to the discussions among
the IMF participants in the teleconference. And to get Greece to
agree, perhaps a new ‘crisis event’ would have to be provoked.
The original
August 2015 deal called for Greece to introduce austerity measures
that would result in a 3.5 percent annual GDP budget surplus obtained
from spending cuts, tax hikes, and public works’ sales needed to
make the debt repayments to the Troika. But the IMF’s latest
forecast for 2016 is that Greece in 2016 would have a -1.5 percent
GDP budget deficit, not a 3.5 percent budget surplus. And 2015, for
which numbers are not yet available, was probably even worse. Getting
from -1.5 percent or worse to 3.5 percent was thus virtually
impossible, according to the IMF discussants on March 19, and
therefore additional austerity measures were necessary.
According to
the IMF, the additional austerity would have to occur in the form of
‘broadening the tax base’—a phrase typically associated with
making households with lower incomes pay more taxes instead of just
raising tax rates on the top income households. The IMF thus
rejected taxing the rich further, and instead taxing middle and
working classes more. In addition, still more pension cuts would
also prove necessary, as well as other measures.
The IMF
secret teleconference further revealed that the IMF was increasingly
concerned that the European Commission, in the midst of discussions
with Greece on the details of the implementation of the August deal
with Greece, might agree prematurely to grant some kind of ‘debt
relief’ to Greece. The IMF was strongly opposed to ‘up front’
debt relief. All talk of debt relief should be postponed for at
least another two years, according to the IMF’s secret discussions.
The private
teleconference also revealed the IMF was growing increasingly
concerned that Greece’s major debt payment to the Troika due this
coming July 2016 might not be paid. The default on the payment would
come within weeks of a possible United Kingdom exit (Brexit) from the
European Union, scheduled for a vote in the UK on June 23, 2016. If
the UK exited, and Greece could not pay, it might raise renewed
interest — the IMF feared — in a Greek exit (Grexit) as well as a
UK ‘Brexit.’ The IMF’s March 19 teleconference therefore
raised the idea that further austerity should be considered and
proposed on Greece and quickly, before the June 23 UK referendum in
that country.
The IMF’s
April 15 Press Conference
The
“firestorm” over the leak of the IMF’s plans for new and more
austerity for Greece prompted public responses by Greece, as well as
a clarifying press conference by the IMF’s European directors on
April 15, 2016.
Greece’s
prime minister, Alexis Tsipras, publicly replied, noting Greece was
already undertaking “an ambitious reform of income tax and a major
overhaul of the Greek pension system”—the former providing a
revenue of 1 percent of GDP and the pension reform and even greater
1.5 percent by 2018. With pensioners carrying the greatest burden of
the austerity terms, why should the very rich be given relief with
more taxation imposed on the middle and working classes by
‘broadening’ the tax base—i.e. making it less progressive,
Tsipras inquired.
Wolfgang
Schaueble, hard line German finance minister, who led the forces
imposing even more austerity on Greece in August 2015, responded that
debt relief was “not necessary” and ruled out any debt relief
whatsoever for Greece, in 2018 or at any time. Schauble added that
IMF refusal to participate in the August 2015 Greek debt deal unless
the terms of the deal were changed to suit the IMF (which did not
sign the deal as yet), would collapse the 2015 deal altogether.
In the IMF’s
press briefing of April 15, 2016, Poul Thomsen, head of the IMF’s
European department, responded that the IMF could not participate in
the bailout without debt relief in some form, but left the door open
as to what debt relief actually meant. Thomsen repeated his proposal
to “broaden the tax base” and not raise taxes further on the
rich.
Behind the
apparent Schauble vs. IMF disagreement is the implication that ‘debt
relief’ would require some kind of what is called “haircut” and
reduction in interest and/or principal for those investors holding
bonds issued by the Troika on Greek debt. That’s what Schauble and
European bankers don’t want. The IMF thus assured that debt relief
did not require “haircuts.”
The
Meaning of the IMF’s New Attack on Greece
What the new
developments reveal is that fractures are emerging within the Troika
and the Euro elites in general over the Greek debt deal of last
August, as Europe’s economy continues to falter. New crises have
emerged in Europe, including the cost of refugee settlement and the
great economic uncertainty associated with the possible UK ‘Brexit’
this June. Europe’s central bank monetary policies are also
clearly failing in the face of a steadily slowing global economy.
At the same
time, the IMF itself is facing additional challenges supporting an
even worse economic crisis in the Ukraine, which it has also
committed to bail out but which is collapsing faster than predicted.
Meanwhile, on the horizon are growing stresses in emerging market
economies that have accumulated $50 trillion in additional debt since
2009, which threaten to lay claims on the IMF in the not too distant
future. The IMF is no doubt looking over its shoulder at even greater
potential challenges than Greece.
In short,
the deteriorating conditions in the global economy are beginning to
converge, and the Troika, Europe, IMF are all feeling the heat as the
economic temperature rises. Another debt crisis in Greece is
inevitable. But it may occur at a juncture at which it appears the
least of the economic problems facing the global economy.
Source:
Related:
Comments
Post a Comment