Greece is once again in the headlines as discussions for the second review of its European Stability Mechanism (ESM) program are gaining pace. Unfortunately, the discussions have also spurred some misinformation about the role and the views of the IMF. Above all, the IMF is being criticized for demanding more fiscal austerity, in particular for making this a condition for urgently needed debt relief. This is not true, and clarifications are in order. Continue reading “The IMF is Not Asking Greece for More Austerity” »
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Having successfully pulled Greece from the brink last summer and subsequently stabilized the economy, the government of Alexis Tsipras is now discussing with its European partners and the IMF a comprehensive multi-year program that can secure a lasting recovery and make debt sustainable. While discussions continue, there have been some misperceptions about the International Monetary Fund’s views and role in the process. I thought it would be useful to clarify issues.
All eyes are on Greece, as the parties involved continue to strive for a lasting deal, spurring vigorous debate and some sharp criticisms, including of the IMF.
In this context, I thought some reflections on the main critiques could help clarify some key points of contention as well as shine a light on a possible way forward.
The main critiques, as I see them, fall under the following four categories:
- The 2010 program only served to raise debt and demanded excessive fiscal adjustment.
- The financing to Greece was used to repay foreign banks.
- Growth-killing structural reforms, together with fiscal austerity, have led to an economic depression.
- Creditors have learned nothing and keep repeating the same mistakes.
Today we published the World Economic Outlook Update.
But first, let me talk about the elephant in the room, namely Greece.
The word elephant may not be right: As dramatic as the events in Greece are, Greece accounts for less than two percent of the Eurozone GDP, and less than one half of one percent of world GDP.
Continue reading “Behind the News in Greece and China, Moderate Growth Continues” »
The status of negotiations between Greece and its official creditors – the European Commission, the ECB and the IMF – dominated headlines last week. At the core of the negotiations is a simple question: How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?
In the program agreed in 2012 by Greece with its European partners, the answer was: Greece was to generate enough of a primary surplus to limit its indebtedness. It also agreed to a number of reforms which should lead to higher growth. In consideration, and subject to Greek implementation of the program, European creditors were to provide the needed financing, and provide debt relief if debt exceeded 120% by the end of the decade.
The program deals squarely with the two most fundamental issues facing Greece―not only high debt but also low competitiveness. And it is fair, both in asking for shared sacrifices, not only within Greece, but also between Greece and its creditors.
“The combination of ambitious and broad policy efforts by Greece , and substantial and long-term financial contributions by the official and private sectors, will create the space needed to secure improvements in debt sustainability and competitiveness," Lagarde said in a statement. "These actions, together with a significant strengthening of the financial sector, will pave the way for a gradual resumption of economic growth."
The head of the IMF Christine Lagarde was clear during her press conference—European leaders deal to help Greece and the euro area is a very constructive and comprehensive package of measures to resolve debt problems.
Christian Saborowski is a Senior Economist in the IMF’s Western Hemisphere Department where he forms part of the Fund’s Mexico team. He previously worked on the Fund’s Brazil and Greece teams focusing on external sector and debt restructuring issues and contributed to a range of analytical projects predominantly on issues of international finance and monetary economics. He holds a PhD from the University of Warwick.
Ms. Pérez Ruiz is Mission Chief for Guatemala WHD. Previously, she had been Senior Economist for Chile and gained a diverse country experience working in EUR (2009−2016) (Greece program, Euro area team, France desk, and one off missions with the Netherlands and Belgium). Before joining the IMF, Ms. Pérez Ruiz had served as a Senior Economist at the European Commission (2006−09), and as economic advisor to senior management at the Spanish Ministry of Finance (2001−06). She holds a Master’s and a D.Phil. in Economics from the University of Valencia, Spain.