{"id":19232,"date":"2020-01-08T20:53:34","date_gmt":"2020-01-08T18:53:34","guid":{"rendered":"https:\/\/bestinsurance.gr\/a1\/?p=19232"},"modified":"2020-01-08T20:53:34","modified_gmt":"2020-01-08T18:53:34","slug":"the-imf-leaves-but-greeces-rescue-isnt-over","status":"publish","type":"post","link":"https:\/\/bestinsurance.gr\/a1\/archives\/19232","title":{"rendered":"The IMF Leaves, But Greece\u2019s Rescue Isn\u2019t Over"},"content":{"rendered":"
Wednesday, January 8, 2020 04:28 PM<\/p>\n<\/section>\n
\n

By Leonid Bershidsky<\/a><\/p>\n

(Bloomberg Opinion) —<\/span><\/section>\n

The announced closure<\/a> of the International Monetary Fund\u2019s office in Athens feels like a landmark, even though Greece, unlike many other crisis-hit nations in recent decades,\u00a0was emphatically not bailed out by the IMF. It\u2019s a moment to reflect on whether Greece really has been bailed out by anyone.<\/p>\n

Technically, Greece is no longer a country in crisis. It\u2019s\u00a0more indebted relative to its economic output than any other European Union member state:\u00a0Its debt-to-GDP ratio stood<\/a> at 180.2% at the end of the second quarter last year, compared with an EU total of 80.5%, and there is no significant downward trend. But the European Commission sees<\/a> the debt burden\u00a0as sustainable and projects that it will drop to 100% of GDP by 2041. A\u00a02018 deal, which smoothed out Greece\u2019s repayments, helped greatly with that.<\/p>\n

Other indicators look bad but not catastrophic.\u00a0Unemployment is down to 16.4% from a\u00a02014 peak of 27.8%. The economic growth rate is finally in positive territory, projected by economists tracked by Bloomberg to reach 1.7% for\u00a02019 and 2% this year.<\/p>\n

From the IMF\u2019s point of view especially, there\u2019s little left to do in Greece.\u00a0Last year, the country made an early repayment of 2.7 billion euros ($3 billion) on its\u00a0relatively expensive debt to the IMF. Now, it only\u00a0owes<\/a>\u00a0the fund, which made its last disbursement to Greece as long ago as 2014,\u00a0a mere $6.3 billion out of a total of\u00a0$340 billion in external debt.<\/p>\n

But in\u00a0effect, the crisis and the rescue efforts have cast Greece, an EU member since 1981, down to the economic level of some of the newest member states. Its per-capita GDP, adjusted for purchasing power parity, has stabilized<\/a> at a little more than two-thirds of the average EU level, about the same as in Latvia or Romania. The high taxes forced on Greece by creditors have created an informal economy about as big<\/a>, relative to GDP, as in these and other Eastern European countries.<\/p>\n

According to Elstat, Greece\u2019s national statistical agency, net migration has been positive in the last few years, but that\u2019s more of\u00a0a problem than a happy development. Greeks have been leaving the country of about 11 million at a rate of more than 100,000 a year since the crisis started. The outflow only has been offset\u00a0by the arrival of migrants from the Middle East\u00a0and Africa\u00a0during the recent refugee wave \u2014\u00a0a burden Greece struggles to process.<\/p>\n

\n
<\/div>\n<\/figcaption><\/figure>\n

Unlike Eastern European countries, however, Greece has never received much of a remittance inflow from its emigres. In fact, such transfers of funds have even dropped since the crisis-driven mass emigration started.<\/p>\n

\n
<\/div>\n<\/figcaption><\/figure>\n

Greece also has less flexibility to foster\u00a0economic expansion than the Eastern European nations: Agreements with creditors forced it\u00a0to run primary budget surpluses, and even despite low interest rates, its financing needs are much higher than the Eastern Europeans\u2019 because of the sheer size of its debt pile. Romania, for example, has a government debt-to-GDP ratio of just 34%.<\/p>\n

What\u2019s more, unlike their Eastern European counterparts, Greek banks are saddled with enormous amounts of non-performing loans, which aren\u2019t declining fast enough to allow banks to expand credit. The Greek banking system\u2019s bad-loan ratio stood at 42.1% in September, the latest month for which data are available.\u00a0In Romania, that ratio is\u00a0below 5%.<\/p>\n

\n
\n
<\/div>\n<\/figcaption><\/figure>\n<\/div>\n

Greece, in other words, isn\u2019t just starting from a low base like the Eastern Europeans \u2014\u00a0it\u2019s doing so while dragging around\u00a0a ball and chain. The center-right government\u00a0of Kyriakos Mitsotakis is trying to offload the bad debt from banks\u2019 books and lower taxes, but Greek governments\u2019 flexibility in fixing the economy will be limited long beyond Mitsotakis\u2019s tenure.<\/p>\n

In a way, the restrictions are\u00a0fitting payback\u00a0for what went wrong in Greece. In a September\u00a02019 speech<\/a>, Poul Thomsen, director of the IMF\u2019s European Department, said Greece\u2019s crisis was different from the contemporaneous ones in Spain, Ireland and Portugal. In those countries,\u00a0adoption of the euro drove a private credit expansion\u00a0that led to an \u201cunsustainable demand boom.\u201d In Greece, by contrast, it was the government that feasted, raising pensions and social transfers by 7% of GDP between the single currency\u2019s\u00a0adoption and the onset of the crisis. That, in Thomsen\u2019s view, explains Greece\u2019s bad fortune in facing a greater fiscal tightening\u00a0than Europe\u2019s other crisis victims.<\/p>\n

By extension, Greece\u2019s political elite must learn to live with the long-term restrictions.\u00a0An obsessive spender needs to be separated from his credit cards. Contrary to what\u2019s often assumed, Greece\u2019s private creditors were punished, too, for supporting the government\u2019s appetites \u2014\u00a0they took a major haircut in 2012.<\/p>\n

In other words, a lot has been done to minimize moral hazard on the part of Greek politicians and private investors. But it still exists for the IMF and the EU, which have collectively worked out the punishment that came as part of Greece\u2019s financial rescue. They won\u2019t be responsible for any of the mistakes they made during the bailouts \u2014\u00a0underestimating the depth of the crisis, demanding the draconian tax increases, insisting on budgetary tightness even as it translated into continuing economic decline.<\/p>\n

The IMF is getting paid back ahead of time. Yields on the bonds issued by the European Stability Mechanism to support Greece, are negative, so Europe can well afford to be lenient on Greece\u2019s repayment terms.\u00a0The Greek crisis has delivered tough lessons to Greece\u2019s elite and to bankers. But the IMF and the European Union are free to handle the next crisis in the same bungling ways, battering the victim but taking on little of the cost.<\/p>\n

Of course, the world doesn\u2019t have to be fair, but Greece\u2019s institutional creditors should consider shouldering more of Greece\u2019s burden. If the Mitsotakis government, and perhaps its successor, make substantial progress in getting Greece\u2019s economy to grow again and Greek emigres to come home, nominal debt cuts shouldn\u2019t be ruled out. It\u2019s not wrong to make Greece wear its\u00a0ball and chain, but making it do so\u00a0indefinitely is excessive.<\/p>\n<\/section>\n","protected":false},"excerpt":{"rendered":"

Wednesday, January 8, 2020 04:28 PM By Leonid Bershidsky (Bloomberg Opinion) — The announced closure of the International Monetary Fund\u2019s office in Athens feels like a landmark, even though Greece, unlike many other crisis-hit nations in recent decades,\u00a0was emphatically not bailed out by the IMF. It\u2019s a moment to reflect on whether Greece really has<\/p>\n","protected":false},"author":1,"featured_media":16141,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[2],"tags":[],"class_list":["post-19232","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-2"],"jetpack_publicize_connections":[],"_links":{"self":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/19232","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/comments?post=19232"}],"version-history":[{"count":1,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/19232\/revisions"}],"predecessor-version":[{"id":19233,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/19232\/revisions\/19233"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/media\/16141"}],"wp:attachment":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/media?parent=19232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/categories?post=19232"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/tags?post=19232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}