Is the IMF About to Make Greece an Offer It Can’t Refuse?

By Don Quijones, Wolf Street

The bailout programs that were proposed for Greece and approved for Greece were much too one-sided. They relied too much on sacrifices on the part of Greece and not enough sacrifices on the part of Greece’s creditors.

These words belong to a Brazilian economist called Paulo Nogueira Batista Jr. who represents 11 Central and South American countries on the IMF board. During a recent interview with private Greek television broadcaster Alfa TV, he made the following rather startling — but much ignored — assertions (none of which will be to the German government’s liking):

  • The first Troika-sponsored program, in 2010, was presented as a bailout of Greece but was in reality a bailout of Greece’s private creditors. Greece received enormous amounts of money but almost all of it was used to allow the exit of French, German and other Northern European banks from their positions, which were paid at par without any contribution to the restructuring of the Greek economy.
  • Any solution to Greece’s debt crisis should include a significant restructuring of debt with its official European creditors. Without a restructuring, it’s very hard to envisage Greece extricating itself from its economic and social crisis.
  • The Greek government should respect the IMF’s preferred creditor status. Any debt restructuring should affect other creditors that do not have this preferred creditor status. In other words, whatever Greece tries to do, it should forget about attempting “to restructure its debt with the IMF.”

Rising Divisions

It doesn’t take much reading between the lines to realize that what Batista is essentially advocating is for European taxpayers to be left holding a bag of worthless, cancelled Greek debt while the IMF continues to get paid – to borrow Batista’s own words – “at par.” This is an offer that would completely obliterate the strict conditions recently set for Greece by Germany, the Eurozone’s biggest creditor nation, and supported by all other Eurozone nations. They include fellow Club-Med nations like Portugal and Spain whose governments Greek PM Alexis Tspiras recently accused – with some justification – of seeking to sabotage talks on extending the Greek bailout program.

This is particularly true in the case of Spain. Threatened by the rise of Podemos, an anti-austerity movement with close links to Syriza, Spain’s beleaguered, scandal-tainted government is determined to block any attempt at giving Greece more breathing space. As Spanish premier Mariano Rajoy recently told journalists in Brussels, Madrid expects Greece to repay every single cent of the €26-billion loan that Spain has lent it. “The important thing for us is that Greece, which already started growing, sticks to the rules and the commitments they signed up for in exchange for loans,” he added.

All of which makes you wonder what the heck is happening in euro land? What was actually solved last month if a) Greece will soon need a new bailout to the tune of roughly €50 billion; and b) divisions continue to rise all over the place? Even the Troika’s already fragile unity may finally be crumbling. Or is this just another variation on the good-cop, bad-cop, bad-cop routine? Is the IMF finally abandoning the largely German-written script on Europe’s bailout regime? Or was Batista merely speaking in a personal capacity, off the cuff and off message?

Granted, the Brazilian economist has a reputation for straight-talking and veering off the script. In 2013 he accused the Fund’s own economists of making “over-optimistic” assumptions about Greece’s economic growth and the sustainability of its debt:

Never-ending economic depression and severe unemployment levels have led to political discord. The widespread perception that the hardship brought on by draconian adjustment policies is not paying off in any way has further undermined public support for the adjustment and reform program.

If Batista’s latest pronouncements are to believed — and for the moment there’s been no official denial from his Washington-based employer — they could represent a complete departure from traditional IMF policy on Greece. While he urged the new Greek authorities to “continue working with the Fund’s technical staff,” he also invited much closer collaboration with the Fund’s “political authorities.” When representatives of the Greek government come to Washington, he said, they should “present their view directly to the executive director of the Fund” and “perhaps even invite executive directors of the fund to visit Greece.”

With Friends Like These…

It all sounds remarkably cozy. According to Batista, the Fund is willing to be a lot more accommodating with Greece – provided, of course, the insolvent nation continues paying its obligations to the Fund. The question: Is Syriza prepared to dance to a tune arranged by the IMF, an institution that, as former Fund economist Davison L Budhoo once put it, makes or breaks “human life every day of every year as probably no other force on earth has ever done in the past or will ever do again.”

Given the paucity of prospects available, Greece’s new government will have few other options. On Monday representatives of its finance ministry will attend yet another make-or-break meeting with the Eurogroup, as the Troika, in Tsipras’ words, slowly tightens the noose around Greece’s neck. As such, if the IMF were to offer a last-minute reprieve (a sizable “if”), you can bet your bottom dollar that Syriza will seize it with both hands. Indeed, Greece’s Finance Minister Yanis Varoufakis has already admitted as much – not in the last few days, mind, but way back in 2013 during the Q&A session of a university lecture titled “Confessions of an Erratic Marxist”:

Of the two pillars of the Troika, the IMF is less keen on austerity… than Germany is. They expressly state that austerity has gone too far, that reductions in pensions should stop…

Where I think there is clear ground for a… short-term opportunistic agreement [with the Fund] is concerning the banks. At the moment, the bankrupt Greek taxpayer is borrowing €50 billion from the European taxpayer to give it to [Greece’s] bankrupt banks. And that money is simply going into a black hole and disappearing…

That we should stop and the IMF would be with us because it is completely against the way the banks have been recapitalized in Europe. And they will be able to use that as a bulwark against the way the Germans and French are clinging on to this cozy and corrupt relationship between local political elites in France and Germany and local banks such as Paribas and Deutsche. This is something Syriza should utilize.

Whether Varoufakis is right and the IMF can be trusted as a temporary ally in its battle with Greece’s own bankrupt banks, time will certainly soon tell. If it can’t and there is no last-minute reprieve from a fragmented Troika, time will soon run out for Syriza’s Greece — at least as a member of the Eurozone.

Sharing is caring!