[Debate] IMF clashes with EU over Greek austerity

[Riaz K Tayob]

Athens News
IMF clashes with EU over Greek austerity
by Dimitris Yannopoulos 12 Jan 2012

A long-brewing rift between the IMF and the EU over the failure of their 
austerity programmes in Greece burst into the open on Thursday following 
an informal IMF press-briefing of Greek correspondents in Washington.

Thursday morning reports from that briefing on Mega and Ant1 TV channels 
said that the IMF mission staff in the troika sought to distance 
themselves from a "counterproductive set of austerity measures" imposed 
on the country under the insistence of the EU side.

The reports came in the wake of the talks which the IMF managing 
director Christine Lagarde held on January 10 with German Chancellor 
Angela Merkel in Berlin and French President Nicolas Sarkozy in Paris.

No official press conference or communique was issued after Lagarde's 
shuttle meetings. But leaks in Handelsblatt and other EU newspapers on 
January 11 said that the IMF head had warned Merkel and Sarkozy that the 
parameters of the second bailout package for Greece agreed on October 26 
had changed.

Lagarde reportedly said that, given the deterioration of Greek fiscal 
and economic data, the new bailout loan should be increased by "tens of 
billions of euros" from its original 130bn euro loan target.

Furthermore, the IMF estimated that the Greek debt held by private 
bondholders would require a haircut of more than 50 percent (or 100bn 
euros) of its face value in order to become sustainable, especially if a 
significant minority of investors refuse to participate in a "voluntary" 
private sector involvement (PSI) deal.

The senior IMF sources in Washington noted that there were "unprecedened 
delays" in the proper implementation of fiscal and structural reforms 
linked to the first 110bn euro bailout programme. Instead, "horizontal 
austerity measures are constantly being adopted that are leading 
nowhere, whilst further wage and pension cuts are unjustified because 
the only way to improve competitiveness is through growth-creating 
market liberalisation, the opening of closed professions and productive 
investments".

Rather than pushing through blanket wage cuts on underpaid groups of 
employees in the public and private sectors, the IMF sources stressed 
that selective reductions in exorbitant salaries and closure of wasteful 
work stations needed to be introduced in dozens of public utilities 
(DEKO) and other state agencies "in order to attract foreign investment".

"We have spoken repeatedly about reforms in the labour market to the 
extend that certain elements in the structure of the Greek state 
constitute a hindrance to the creation of new jobs," the IMF sources 
were quoted as saying. "We have said that this leads to rising 
unemployment and something must therefore be done about it," the sources 
added, without including the private sector minimum wage or the summer 
and Christmas bonuses among the measures that could overcome such 
bottlenecks.

The senior IMF sources speaking under condition of anonymity also said 
that IMF mission chief in Greece Poul Thomsen would probably not join 
his counterparts from the EU (Mathias Morse) and ECB (Klaus Mazouch) in 
their next inspection trip to Athens on January 17, underlining the 
seriousness of the clash between the troika's twin pillars.

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