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Really good piece, and all great counterpoints to the IMF's arguments.

However, your diary opens up a new dialogue about whether the Greek government should carry out the EU/IMF austerity plan which is actually distinct from the one about whether or not it really has to or can do it.  I think clearly it does not have to -- there are other options that could be less painful to various of the current or past beneficiaries of Greek fiscal policy.  But from the point of view of non-Greeks, particularly European non-Greeks but also the rest of the world as well, I think the IMF is doing a very good job of trying to compel Greece to do things that make the world a better place for everyone else, and that is, in fact, the IMF's principal mission in the world, neo-liberal or not.

The issue at stake here is that the Greek government, as a member of the EU, been compelled by its citizens, quite reasonably, to provide social benefits closer to those enjoyed by many larger and wealthier members of the EU polity of which they are members. But the structure of the EU, particularly the single currency, makes it difficult for the Greek government to deliver on those commitments with its own resources, thus Greece has essentially tried to compel either its creditors, or the rest of the EU, or both, to provide it with resources to do that. This situation is inherently contradictory -- Greek commitment to the EU project and what is essentially Greek policy to take from (largely EU) foreigners to give to Greek citizens -- so it naturally leads to political conflict and crisis.

The IMF's purpose is not primarily to help Greek citizens or the Greek government, contrary to what most discourse, including IMF discourse, on the matter seems to suggest.  Rather, it is to help provide for global financial and economic stability. Given the conflict over who gets what, when, and how that is going on today  in the Greek/EU/bankers drama, it seems like the IMF has a pretty good moral case at least (provided that everyone agrees, as Greece does so far, that the EU and the Euro are institutions worth protecting) for trying to compel Greece to implement policies that don't involve transfers of resources from the rest of us to Greeks.  

by santiago on Tue May 25th, 2010 at 05:15:21 PM EST
Very rosy outlook, if you ask me.

If the IMF were truly this beneficent, then you would think it would try to alter its modus operandi after one colossal flub after another.

If the IMF really wanted to insist that Greece change and become a better member of the union, it would not have pissed around the margins of the Greek economy by installing half measures (if you look at the IMF plan for Greece, it doesn't really make any sense) and instead created more permanent cuts that would put the country on better footing. Increased VAT, pensions cut when pensions are already at poverty level, this is nibbling at the margins, especially when Greece has purchased tens of billions if not hundreds of billions of armaments in the last decade.

I think Talos's article makes clear that Greek GDP, Greek tax revenue, is more than enough to sustain the rather meager salaries and pensions. So what exactly is this "transfer" of wealth?

Aren't we talking now about Greek gov't debt? If so, the first question that needs to be asked is, How did Greece build that debt?

But, as of yet, no one has answered that question with facts, least of all the Greeks. The current Greek gov't needs to come clean, because in the absence of facts from the current Greek gov't, the rest of the world is more than happy to fill in the details with speculation and half-truths or even outright lies. Read the IMF's document on Greece.

Lots of suppositions there, many of which contradict annual IMF assessments of Greece and prior analysis of the Greek economy inside the euro.

I think the current Greek government is not telling the truth for political reasons. They are absolutely avoiding the elephant in the room, and that elephant is corruption. What do they fear? The nation's political stability. But unless they carve out the cancer at the heart of their debt, the political climate inside Greece will not improve.

All the talk from outside Greece is simply platitudinous chatter until Greece comes clean.

by Upstate NY on Tue May 25th, 2010 at 05:34:55 PM EST
[ Parent ]
This has nothing to do with being beneficent.  This is, as are all political conflicts, a raw fight over resources, so the question is, on which side are you in this particular conflict?  (And I know you're Greek from past posts, so you might have more ambiguous allegiances than most of us.)

If Greek GDP, tax revenue, etc. were more than enough to sustain Greek pensions without IMF help, then there wouldn't be the crisis at all, would there? The problem is that it when you tie your policy options to a larger group like the EU, which means that you transfer your power to that larger group, you limit your ability to solve domestic conflicts over resources, and that is what has occurred because of Greek adoption of the Euro as its currency.  Because Greeks are unable to increase taxes on the wealthy exclusively, and because so many of the rest of us don't think we should be on the hook for Greek consumption smoothing, the IMF is actually doing its job for its constituents -- the rest of us -- by compelling Greece to lower its consumption so we don't have to lower ours. The question is, should it do its job?

by santiago on Tue May 25th, 2010 at 05:56:49 PM EST
[ Parent ]
Actually, I'm an American of Greek extraction, and also an EU citizen via Italy!!

"If Greek GDP, tax revenue, etc. were more than enough to sustain Greek pensions without IMF help, then there wouldn't be the crisis at all, would there?"

I think this is where we disagree. It's as though you believe that only social spending could get a nation in fiscal trouble.

by Upstate NY on Tue May 25th, 2010 at 06:09:35 PM EST
[ Parent ]
No, military spending can also get a nation into fiscal trouble, but that isn't the problem in Greece right now.  

And actually, its not that any type of spending causes the trouble, but rather it is an inability of a country to resolve, internally, its own political disputes over resources that get countries into fiscal trouble. Given that one part of a polity wants more spending or less taxes, if it can't convince/compel another part of the same polity to pay for it it means the spending/tax policy is fiscally unsustainable and will eventually result in a crisis of some kind, either for that particular country, or, if the country is big enough, for others too.

by santiago on Wed May 26th, 2010 at 12:39:55 PM EST
[ Parent ]
Economics is political. Nobody could have foreseen...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed May 26th, 2010 at 12:53:10 PM EST
[ Parent ]
It may not be the problem in Greece right now, but I would wonder if it has been the problem all along.

We're talking 5% GDP in purchases and 2.3% GDP in weaponry service.

Over a decade, that's a big chunk of change.

by Upstate NY on Wed May 26th, 2010 at 01:19:41 PM EST
[ Parent ]
This has nothing to do with being beneficent.  This is, as are all political conflicts, a raw fight over resources, so the question is, on which side are you in this particular conflict?

Given that a confederation (nevermind a federation) is not sustainable between countries of widely disparate wealth (at least not if it wishes to retain a semblance of democracy), I think I can safely say that I'm on the side of preserving, deepening and widening the European institutions and integration and greater transfers from richer EU members to the median Greek (just as I am on the side of greater EU transfers to the median (North) African resident).

"Old Europe" knew (or should have known) full well what we signed up for when it went for larger and deeper integration over the past two or three decades. Yes, the European Union could jettison the Mediterranean... If we want to have between ten and twenty politically and economically unstable third-world countries right in our back yard. Me, I have a whole slew of reasons to Not Want that, only some of which are humanitarian and altruistic in nature.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 25th, 2010 at 06:36:21 PM EST
[ Parent ]
I think what has happened with the Greek debt is becoming clearer:

The Greek government spent around the EU average and received 5% of GDP less than the EU average for two decades at least. This sustained a debt which was bearable as long as the economy was perceived as expanding. Greek national debt was at 20% of GDP in the 1980s, and expanded to 80% in 1990 and 120% in 1993 (this was partly due to developing a social welfare system, a socially productive debt). It has remained at these levels more or less ever since.

So it has to do with not gathering the revenue required. Not collecting enough taxes however is not due to corruption as a flaw of the system. Its a feature not a bug. The way a corrupt political and economic elite and the whole two-party system could create the social alliances it needed to legitimize itself (and undertax itself BTW), was to
a. bribe the professional classes and the government bureaucracy through gaping tax loopholes and associated corruption,
b. develop a clientilist system in which public employment was some sort of prize for the party faithful and their families
c. control the media, as thoroughly as money can

This was a very inefficient system as far as creating  decent social services is concerned, it debauched social relations and was not sustainable in the long run. This 45% of GDP spent, bought few and inefficient social services and a lot of illegal private gains.

This system might be dissolving at this moment (for quite external reasons mostly), but it seems to be preparing some even more oligarchical solution in its place. An impoverished and broken population is not conducive to a democracy. This is why it is important for a progressive alternative to appear if not to dominate in the short-term, at least to create a pole around which future hope can be organized. This BTW is not and cannot be simply a Greek project, it has to be part of a similar paneuropean movement.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 06:40:20 PM EST
[ Parent ]
a. What resources would be given away if the EU through some mechanism that might or might nor include the ECB lent Greece at a reasonable rate, such that 1.the lender(s) would make a decent profit and 2. the Greek budget could sustainably guarantee the eventual repayment of most or all loans, something which is very iffy at this point if the IMF/Eu plan is followed as is.
b. I'm not sure I understand why the issue is Greece, or only Greece, or mainly Greece any longer. There is a sustained attack on both the Euro and the European social model, which started in Greece due to the pathologies of Greek development, in the same way that lions start picking of buffaloes starting from the weakest.
c. Street riots and general societal havoc are more contagious than people think.
d. Unless one defines the "world" as Greece's financial lenders who bet on a losing horse and now are trying to sell it in order not to lose their money, I can't see how the world stands to gain by Greece's default.
e. Greece was following a path this past decade, that was hailed by all, including the EU and the IMF as the correct one, and which led to continuous and substantial growth for a decade and a half. No one, now complaining, disapproved at the time. People who insisted that a debt bubble is no way to build a stable economy were ridiculed or marginalized because they didn't understand the New Ever-Expanding Economy worked. In fact even in late 2009, lenders were ready to lend Greece at very low rates: at 4+ % the debt was easily sustainable.
f. Most Greek citizens have seen precious little of the money involved as any sort of benefit. German arms dealers, Lockheed Martin, Electronics giants (such as Siemens caught red-handed bribing Greek officials, yet still allowed to bid for Greek government contracts), and all sorts of other major corporations, saw much more of it.
g. Greece is an abstraction. It's not Greece that is being asked to pay up. It is its working class. The elites have sent their money to Swizerland, Cyprus, or bought Real-Estate in the poshest parts of London.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 05:55:26 PM EST
[ Parent ]
d. Unless one defines the "world" as Greece's financial lenders who bet on a losing horse and now are trying to sell it in order not to lose their money, I can't see how the world stands to gain by Greece's default.

Greece's lenders would be hurt by a Greek default like they are being helped by the bailout.

In fact, a Greek default would be a good thing, macroeconomically.

Maybe the EU could declare a debt jubilee. All EU debt would be null and void. Anyone made insolvent by this move would be made whole by the ECB.

Given the amount of circular debt within Europe (where A owes B owes C) the cost of this would be rather smaller than the 200% of EU GDP outstanding as debt.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue May 25th, 2010 at 06:00:06 PM EST
[ Parent ]
Think of it this way:

If Greece does not get assistance from the EU/IMF, what can its government do?  It can (and I argue should anyway) default on its debt, making its bankers pay for their own bubble-causing decisions.  And it can also leave the EMU, going back to its own currency but in the process possibly threatening the viability of the Euro and to a lesser extent the EU itself, as political institutions.  Given that alternative, it's not unreasonable for Greece to want outside assistance or for others to provide it, but it's also not unreasonable for the providers of that assistance to ask for guarantees of some kind to back of the command over resources that they put at risk by assisting Greece.  So the dynamics of power and collective action kind of limit what is possible here.  The question for non-Greeks is, how much is Greece participation in the Euro worth to us?  For EU citizens it might be more, but for others represented by the IMF it is probably something much less.

by santiago on Tue May 25th, 2010 at 06:06:10 PM EST
[ Parent ]
"Its bankers"?

Really, in order to have a discussion, we need to begin from a basic set of facts, such as... 85% of Greek debt is held by foreign banks.

by Upstate NY on Tue May 25th, 2010 at 06:12:24 PM EST
[ Parent ]
Which is an argument for default.  Greece should just refuse to pay its bankers, like hundreds of countries have done before, mostly with little negative consequences.
by santiago on Wed May 26th, 2010 at 11:56:52 AM EST
[ Parent ]
Many have argued that. But, of course, Greek politicians must really care about EU solidarity and remaining in the euro.
by Upstate NY on Wed May 26th, 2010 at 12:32:10 PM EST
[ Parent ]
EU what!?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed May 26th, 2010 at 12:35:14 PM EST
[ Parent ]
great diary, talos, it really eviscerates the IMF case, and the hypocrisy, (that the present financial system holds in its very DNA), is laid bare in all its tawdry detail.

capitalism has become a giant press, in which the public is squeezed, screwed tighter by the relentless drive for economic profit in the financial realm.

this iconisation of numbers leads to a terrible degradation of humanity, and Greece is, as Upstate NY so clearly states, just the weakest wildebeeste in the europack, so is the first crucible for what seems to me to be an experiment in pure post-deomocratic oligarchy, supplied with fascist overtones by its bloated fatcat associations with the arms industry and shipping magnate profits.

bankers love war above all, and this looks like a set-up to create one, as history shows us when a country is screwed too far, it lashes out against its neighbours, (as a distraction from its domestic turmoil.)

add that to a surfeit of weaponry and a crumbling social compact and you have the ingredients for massive mayhem.

the banks always win, and never get blood on their hands directly.

thankyou for a thoroughly professional diary, it brings badly-needed clarity to the discussion; the comments are great too.

international capital is remaking the world through creative destruction, whether/how we can live with the results is another story... as greece goes, so will we all, italians are watching this unfold very attentively.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 25th, 2010 at 06:54:05 PM EST
[ Parent ]
It's always the working class, and increasingly the middle class, which is expected to pay up for - what, exactly? Someone else's yacht?

The constant spin and rhetoric are necessary because if they stopped for long enough to give people time to think, the outcome would literally be revolutionary.

Great diary, by the way.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 25th, 2010 at 08:43:20 PM EST
[ Parent ]
Rather, it is to help provide for global financial and economic stability.

And herein lies the problem: When the reach of the capital markets exceed their grasp to the extent that it does today, you can provide for either economic or financial stability.

Economic stability is best provided by telling the capital markets to fuck off and die and using the power of the sovereign state to underwrite industrial development until the capital markets have (been) rebooted and are back online in a less malign version.

Obviously, telling the capital markets to fuck off and die does financial stability no favours.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 25th, 2010 at 06:21:16 PM EST
[ Parent ]
JakeS:
Obviously, telling the capital markets to fuck off and die does financial stability no favours.

Greeks `skimp' while IMF `stinks' in Malaysia

Former Malaysian Prime Minister Tun Mahathir Mohamad, who rejected International Monetary Fund policies during Asia's 1997-98 financial crisis, speaks on the Greek debt crisis.

Greece agreed this month to cut wages and pensions, raise sales, fuel and alcohol taxes and overhaul the state-run pension system in return for 110 billion euros (US$136 billion) in emergency loans from the European Union and the International Monetary Fund.

Mahathir made these comments in an emailed response to queries from Bloomberg.

"The IMF hasn't learnt from its mistakes. Its solution is still the same, that is extending loans for payment of debts and making recipients indebted to the IMF instead. The Greeks will now be debtors to the IMF and will have to skimp and stint in order to repay the IMF loans. I'm glad the IMF now agrees that in certain cases capital controls are okay. But the situation in Greece is not similar to Malaysia. They are euro-poor. We were poor because our currency was devalued."

On why Malaysia rejected the IMF:

"The IMF standard formula for countries in debt is to bail them out. The Greeks would simply be using the IMF euros for paying their debts to the foreign banks and end up owing the IMF the same amount of money. To repay the IMF loans the Greeks would have to accept becoming poor with less earnings for very many years. Malaysia rejected borrowing from the IMF precisely because of this. We would have had our economy run by the IMF whose principal interest is to get back the money it lent."

On Malaysia's answer:

"We bailed out our companies, but that worked simply because we applied currency control with a fixed exchange rate."

On over-spending:

"Whatever solution for a country in debt must involve accepting becoming poorer. Greeks had been living on borrowed money. The wealth they enjoyed was not theirs. Even Malaysia had to accept being poorer when we fixed the exchange rate at RM3.80 to US$1 from RM2.50 before the crisis. Our GDP and per capita income were lowered in US dollar terms.

All the countries of the world must accept becoming poorer because they had all been spending money they did not have. Bailouts will not restore the wealth enjoyed before. Much of the profits earned will go towards paying the bailer. The huge profits by Goldman Sachs, for example, largely belong to the government, not the shareholders."

On the IMF's reputation in Asia:

"I cannot say for other countries, but certainly the IMF still smells bad in Malaysia. But it is likely that it is not yet smelling like roses in other Asean countries."


"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Tue May 25th, 2010 at 07:29:53 PM EST
[ Parent ]
What Mahathir is arguing here is that Greece withdraw from the Euro.
by santiago on Wed May 26th, 2010 at 01:18:56 PM EST
[ Parent ]
Actually, that it suspend the EU's internal market rules while staying in the Euro:

On Malaysia's answer:

"We bailed out our companies, but that worked simply because we applied currency control with a fixed exchange rate."

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Wed May 26th, 2010 at 01:52:51 PM EST
[ Parent ]
Yes, that's certainly an implication applicable to Greece and its relationship with the EU.  But what Mahathir actually says here is that they didn't maintain a fixed currency. Rather, that they devalued it:

Even Malaysia had to accept being poorer when we fixed the exchange rate at RM3.80 to US$1 from RM2.50 before the crisis. Our GDP and per capita income were lowered in US dollar terms.

By Mahathir's own recollection, it's not the fixed part that allowed Malaysia to cure itself without IMF austerity.  It's the fact that it retained it's own monetary policy, which Greece doesn't have anymore, like Krugman keeps saying.

by santiago on Wed May 26th, 2010 at 03:23:33 PM EST
[ Parent ]

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