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IMF’s miscalculations on Greek austerity

10.06.2013
Press
IMF’s miscalculations on Greek austerity
flickr@ross domoney

Although much of the international attention was understandably drawn by the protests in neighboring Turkey, IMF's surprising mea culpa on Wednesday over the Greek bailout made international headlines. In an internal document marked “strictly confidential”, the IMF authors described how the Washington based organization overestimated Greece's return to market financing.

 

The historical event was highly anticipated for 2012 but fact remains Greece has entered its 6th consecutive year of recession. Moreover, IMF experts underestimated by as much as three times the negative effects of austerity policies imposed on the country's economy. 

 

The use of the so called Greek statistics to produce IMF's statistics for Greece suggests an ironic turn of events that did not go unnoticed by the German press, whose extensive coverage and highly critical stance indirectly aimed Chancellor Merkel and Federal Minister of Finance, Wolfgang Schaeuble. However, Spiegel Online noticed that the report will increase the pressure on the European partners, so as to agree to a further debt restructuring for Greece. Economists have long assumed that a further debt relief is unavoidable, provided that the target of pushing the Greek national debt by 2020 to 124% of the Greek GDP is still relevant. 

 

Berlin announced last week an initiative with the KfW (a German government- owned development bank) to provide €1bn aid for Spanish Small Medium Enterprises. However, in the course of the week and in view of the harsh criticism for the IMF's mistakes, Mr. Schaeuble was quick to expand the German credit facility to Portugal and Greece as well. There had been similar considerations in 2011 in Athens but the efforts failed to beat fruit because even competitive Greek companies were offered loans with extraordinary high interest rates, even though Greek banks could finance themselves at the historically low interest rates set by the European Central Bank.

 

Italian journalists are keen on drawing a parallel between Greece and Italy because it would be really unfortunate to host a meeting about the fight against high unemployment and the possible measures to boost growth in the euro countries, only to be eventually excluded

 Much to Italy's dismay, a similar offer by the KfW is not to be expected in the near future because German officials stated that Italy has sufficient financial resources for the time being and the country's annual budget deficit is much lower than in Spain, Portugal and Greece. The Italian Panorama portal shows no particular sympathy for IMF's use of Latin in admitting its own miscalculations  and instead puts additional emphasis on the exploding unemployment rate of 27% in Greece and Spain. Italian press highlighted the dire situation in Greece, hoping that Italy's case won't be easily dismissed during the meeting of labor and finance ministers from Germany, France, Spain and Italy on Friday on 14th of June in Rome. Italian journalists are keen on drawing a parallel between Greece and Italy because it would be really unfortunate to host a meeting about the fight against high unemployment and the possible measures to boost growth in the euro countries, only to be eventually excluded.

 

Nevertheless, a fresh air of optimism is blowing to Greece from Romania, as the economic newspaper Ziarul Financiar delves into Greek etymology. The term "Grexit" was coined last year by analysts at the U.S. bank of Citibank and popularized before the elections held in 2012. One of the analysts credited with inventing the term, namely Citi's chief economist Willem Buiter maintains that the probability of Greece exiting the Eurozone is now virtually close to zero. “'The absence of negative news titles encourage tourists from Western Europe to return to the beaches of Greece and the investors to take a closer look at the Greek assets" said Buiter, before assuming that “if Greece follows the current course, its economy will recover and will enter into the phase of "Greekovery". And the summer moved on.

 

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