It looks as if the IMF knew from the beginning the Austerity Program for Greece was far away from a possible success. This revelation comes from Panagiotis Roumeliotis, former representative of Greece to the International Monetary Fund. For one striking reason: Because as a member of the common currency area, the Euro Zone, Greece could not devalue its currency. And because the IMF underestimated the impact of the austerity to the real economy.
“We knew at the fund from the very beginning that this program was impossible to be implemented because we didn’t have any — any — successful example,” said Panagiotis Roumeliotis at New York Times, a vice chairman at Piraeus Bank and a former finance minister who until January was Greece’s representative to the International Monetary Fund. Because Greece is in the euro zone, he noted, the nation cannot devalue its currency to help improve its competitiveness as other countries subject to I.M.F. interventions almost always are encouraged to do.
At the same time, Mr. Roumeliotis and others note, the troika underestimated the negative effect its medicine would have on the Greek economy.
“The argument that is used usually by the troika in order to criticize Greece — and to ignore their mistakes — is that the deep recession is because of the nonimplementation of the structural reforms,” Mr. Roumeliotis said. While Athens has fallen woefully short on that front, he conceded, the bigger problem is that the severe cuts contributed to the downward spiral by decimating economic demand within Greece.
It remains to be seen whether the troika is prepared to force Greece to default. Much of the talk on both sides is aimed at extracting concessions in negotiations. But while Greece has been pushed to the edge before, it now appears to be running out of time because its European partners, however complicit in Greece’s current plight, appear to be running out of patience.
The original [IMF imposed] plan called for Greece to return to financing its debts on the open market in 2014, an idea that one European official, speaking on the condition of anonymity, now calls a “fiction.”
Complicating matters is the fact that the troika’s institutions have different mandates and constituencies. “The troika is not one homogeneous bloc,” said Guntram B. Wolff, the deputy director of Bruegel, a public policy research institute in Brussels. “They have different views.”
Some experts say that the I.M.F. has been quietly pushing to ease the austerity terms while European leaders have mostly been trying to satisfy Germany’s demands to keep Greece on a tight leash to persuade its own voters to support the bailouts. (Full story New York Times via Capital.gr)
Why then Roumeliotis and then PM Papandreou agreed on this program is a …good question!?