Greek puzzle

While there is no denying the fact that Greece has been responsible for the downfall of the euro, one must also realise that the bailout packages approved for Greece have hardly benefited its people.

In response to the request from Greece for an EU/IMF bailout in April 2010, the IMF had approved a loan of €45 billion. When the IMF loans were agreed in 2010, all the developing countries on the IMF executive board including India argued that the banks should also share the costs of the crisis they had created and they should cancel some of the debt, but they were ignored by Europe and the US.

On May 1, 2010, a series of austerity measures was proposed, which persuaded Germany to sign on to a larger, €110 billion EU/IMF loan package over three years for Greece. May 5, 2010, saw a nationwide strike protesting against the proposed spending cuts and taxation measures leading to killing three people.

According to a poll published on May 18, 2011, more than 60 percent of the people felt that the agreement signed with the IMF in 2010 was a bad decision that hurt the country,

Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign, has recently drawn attention to the fact that almost all the money owed by Greece has been used to pay off its lenders, with only 10 per cent of it going to the Greek people.

According to the Jubilee study, since 2010, IMF, European governments and the European Central Bank have lent €252 billion to Greece out of which, €232 billion has been spent on debt payments, bailing out Greek banks and paying ‘sweeteners’ to speculators to get them to accept the 2012 debt restructuring, an obvious reference to the commission paid to Goldman Sachs for the swap deal.

Following a vote in favour of starting talks on a third bailout program in the German Parliament, the EU has just agreed to a three month bridging loan to the tune of €7 billion that would allow Greece make €3.5 billion to the European Central Bank due on July 20, 2015 as well as pay €1.5 billion which Greece owes to the IMF.

While this repayment to the IMF could permit the Fund to participate in a future bailout package, IMF head Christine Lagarde has repeated her call for debt relief.

Greece’s Prime Minister Alexis Tsipras, has agreed to significant pension cuts, VAT increases and an overhaul of collective bargaining rules to secure a third bailout package worth up to €86 billion to avert bankruptcy, but former Finance Minister Yanis Varoufakis was quick to react: “The programme will go down in history as the greatest disaster of macroeconomic management ever.” According to former chairman of US Federal Reserve Ben Bernanke, “failure of European economic policy has played a significant role in the Greek debt crisis.”

The first step in any stabilisation programme from the IMF for any similarly placed country such as Greece would be devaluation of the currency but in the case of Greece this is ruled out since the euro cannot be devalued for the sake one country.

No useful purpose will be served by pumping money continuously to retain Greece in the Euro Zone and it is high time Greece is permitted to leave the Euro Zone and issue its own currency. Retention of Greece in the Euro Zone will set a bad precedent as it amounts to nothing but rewarding fiscal indiscipline.

The writer is a former staff member of the IMF, Washington DC