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Recent press reports have revealed that International Monetary Fund chief Christine Lagarde forced her negotiator to renege on an agreement that would have provided debt relief to Greece.
Eurozone finance ministers and the IMF appeared to reach a deal last week that would have cleared the way for new loans for Greece and provided a framework for future debt relief.
“As I see this playing out, we’re going to end up with a continuation of this extraordinarily severe austerity regime with no meaningful prospect whatsoever for measures that could render Greece’s debt sustainable in the long run,” says securities lawyer Dimitri Lascaris.
“Even if the debt is ultimately rendered sustainable decades down the road, Greece is never going to be the same given the program that’s being imposed upon it,” says Lascaris.
A recent IMF report titled “Neoliberalism: Oversold?” says there are dubious benefits to increased growth resulting from imposing austerity measures and removing restrictions on capital movement across borders. The report also found this growth was both limited and rendered unsustainable.
“All of this just paints a picture of complete incoherence within the IMF itself,” says Lascaris.
Story Transcript
SHARMINI PERIES, TRNN: It’s the Real News Network. I’m Sharmini Peries coming to you from Baltimore. Last week we reported that the eurozone finance ministers and the International Monetary Fund patched together a deal in the early hours of Wednesday morning that clears the way for fresh loans for Greece and sets out how the country could get debt relief in the future. Well, there’s been a bit of a hiccup on that story, and with me to discuss all of this is Dimitri Lascaris. Dimitri is joining us from London, Ontario. He’s a class action securities lawyer called to practice in the state of New York and the province of Ontario. Good to have you with us, Dimitri. DIMITRI LASCARIS: Thank you, Sharmini. PERIES: So, Dimitri, what happened? LASCARIS: About a week ago the Eurogroup concluded a meeting with representatives of Greece and the IMF in which it announced that it was going to issue in two pieces the second tranche of the 86 billion euro bailout that was agreed to last summer after the Greek referendum. And in the announcement that was issued by the Eurogroup at the conclusion of that meeting, it expressly welcomed the decision of the IMF management to recommend to the board of the IMF later this year that the IMF participate in this bailout. And that’s important because the core creditor nations from the Eurogroup, particularly Germany, have been demanding that the IMF participate in any further bailout as a condition of the extension of further loans to Greece. So this was considered by many, including myself, to be capitulation on the part of the IMF, because the deal itself did not make any hard commitment to debt relief for Greece, and the IMF had been saying in the days leading up to the meeting that dramatic debt relief was a precondition to its further participation in this bailout. However, after we spoke about it, some leaks occurred to the press which painted a somewhat different picture. One of the things that became apparent through this series of leaks is that the IMF at the meeting had been represented by the IMF’s department, the director of its European department, Poul Thomsen, a Dane, who has taken the lead in expressing the IMF’s insistence that there be dramatic debt relief for Greece in order to render its debts sustainable. And Christine Lagarde, the executive director of the IMF, the most powerful individual within the IMF management, herself was not present. She was on a trip for some reason to Kazakhstan at the time. And the press release, the leaks to the press were to the effect that Poul Thomsen himself was not prepared to proceed with the recommendation of the IMF board that it participate in the bailout without a commitment to dramatic debt relief, but that he was overruled by Ms. Lagarde in a ten-minute telephone conversation that took place in the hallway, and the reports were that Mr. Thomsen was quite frustrated by having been overruled in that regard. So a senior IMF official, around the time that these leaks occurred, told the press that in fact the IMF management was not yet determined to recommend to the board that the IMF participate in the bailout, and that later this year there were going to have to be further talks and debt relief for Greece, and whether or not the recommendation would be made would depend upon the outcome of those talks, and particularly the satisfaction of the IMF’s demand that there be a concrete plan put in place and a meaningful commitment put in place for debt relief for Greece. So as a result of all of this, now there are noises coming out of the Eurogroup to the effect that perhaps maybe we don’t need the IMF after all. And whatever, however you slice all of this up, Sharmini, it doesn’t bode well for Greece, because if in fact the leadership of the IMF, Ms. Lagarde, is prepared to overrule people like Poul Thomsen in order to keep the IMF in the deal despite the absence of debt relief, then of course, then we’re less likely to see meaningful debt relief for Greece. By the same token, if the IMF is excluded, ultimately, from this bailout, then the one creditor–there are three creditors in the troika, the IMF, the European Commission, and the ECB–the one creditor that has actually been insisting on debt relief will be gone from the scene. So who’s going to be, who’s going to provide the impetus for debt relief for Greece, if that happens? Either way it doesn’t look good. You know, as I see this playing out, we’re going to end up with a continuation of this, this extraordinarily severe austerity regime with no prospect, no meaningful prospect whatsoever, for measures that are going to render Greece’s debt sustainable in the long run. PERIES: Dimitri, even what the IMF was putting on the table in terms of debt relief for discussion was in the long run, and Michael Hudson said this was all smoke and mirrors. Your thoughts on that? LASCARIS: Really what Greece needs, and this is what the IMF was saying at the outset months ago, is a massive reduction in the face amount of the debt, a debt writedown. So on that point it clearly has capitulated, and it clearly has expressed a willingness to participate in the bailout in the absence of a writedown. What it proposed as an alternative in a debt sustainability analysis that was issued just days before the last Eurogroup meeting, was a series of measures which included a debt holiday over a period of some 20 years, a capping of the interest rate to 1.5 percent, and an extension of maturities. And I think Michael Hudson is quite right that there is a real question about whether in the very long run those measures will render Greece’s debt sustainable. But even putting all of that aside, in the short-term what the IMF itself, along with the other creditors, continues to demand, even though the IMF has explicitly acknowledged that it’s a complete pipe dream, is that Greece achieve a primary budget surplus of 3.5 percent. And that will–no country has managed to do that on a sustained basis, or very few countries have managed to do that on a sustained basis. A country in Greece’s condition is almost certainly not going to achieve a primary surplus of that magnitude, and simply trying to do so, as the government is at the insistence of its creditors, is going to inflict far more pain on the economy of Greece. And even if in 20 or 30 years Greece’s debt is rendered sustainable, because of the austerity measures and the demand that it continued to impose further austerity to achieve this primary budget surplus, the Greek economy, I think, is unlikely to ever recover. And that, and so, as I say, even if the debt is ultimately rendered sustainable decades down the road, Greece is never going to be the same given the program that’s being imposed upon it. PERIES: And also in the immediate future, whatever growth the economy realizes is going to go to servicing the debt. So it’s just a no-win situation for Greece. LASCARIS: That’s right. And against this backdrop, after you and I had our last discussion about the developments within the Eurogroup, the IMF staff issued a report, not specifically relating to Greece, but relating to the question of neoliberalism generally. And the report was entitled Has Neoliberalism–I’m paraphrasing–Has Neoliberalism Been Oversold? And this report from three members of the research staff of the IMF, remarkably, acknowledged that that’s exactly what’s happened, that neoliberalism has been oversold. Neoliberalism, as it defines, as defined by the research staff, involves, essentially, two components. One is deregulation, and the other is austerity. And the IMF staff acknowledged quite candidly in this report that austerity actually has the opposite effect in many cases of that which is sought. What is sought is to enhance growth, but in fact it causes economic contraction. And deregulation, it noted, also results in financial crises and in an increase in inequality which itself has a dampening effect on growth. And so even as the IMF research staff, I mean, this is a most remarkable situation, is acknowledging for the first time the failures of neoliberalism, and that it doesn’t achieve its own goals, it continues to insist, the management of the IMF, the leadership of the IMF continues to insist that countries like Greece engage in extraordinarily rapid and extreme deregulation, and extraordinarily severe austerity. All of this just paints a picture of complete incoherence within the IMF itself. PERIES: Dimitri, I wonder whether Lagarde’s going to dress them down in a phone call soon, because I don’t know whether she’s aware that this report has been released. LASCARIS: Well, historically the IMF staff have been somewhat more progressive than the leadership of the IMF. And to their credit, from time to time they, they do exhibit a degree of intellectual integrity and independence that you don’t see from the leadership of the IMF. But I suspect that Ms. Lagarde is not going to be particularly happy with the release of that research paper. PERIES: Dimitri, I thank you so much for joining us today. LASCARIS: Thank you very much, Sharmini. PERIES: And thank you for joining us on the Real News Network.
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