This was never said officially before! “They gave money to save German and French banks, not Greece,” Paolo Batista, one of the Executive Directors of International Monetary Fund told Greek private Alpha TV on Tuesday. Batista strongly criticized not only the euro zone and the European Central Bank but also the IMF and the Fund’s managing Director Christine Lagarde for defending Europe much too much..
He urged Greece to directly negotiate with the IMF and favored the restructuring of the Greek debt that is been hold by the European partners.
Video: English with Greek subtitles
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Paulo Nogueira Batista is from Brazil and represents ten Latin America countries in the IMF board of Directors.
Tell me it isn’t true! How could a paragon of virtue, Deutche Bank, manipulator of the LIBOR, top ranked perpetrator of US mortgage and mortgage backed securities fraud in the EuroZone, ever put self interest before the well being of the Greek people? Surely the man is deluded. Or were they forced to do it to have the billions of Euro to pay the fines for the above mentioned transgressions?
Why do we care what a Latin American Executive Director at the IMF says? He represents developing countries not advanced Eurozone economies…
Right, why do we? Among others, he’s only representing Brazil (7th largest economy on this planet, according e.g. to IMF figures). We would neither care about e.g. Russia (8th), Italy (9th), all the ASEAN countries together (ranked between Italy and India), India (10th), Canada (11th), South Korea (14th), Netherlands (17th), Saudi Arabia (19th), Switzerland (20th), or Sweden (22nd, with only slightly more than 1/4 of Brazil’s GDP), or would we?
Apart from this – for many years already, your “advanced Eurozone economies” have continuously been loosing (quite a bit of) ground in our advanced global economy.
Moreover, and probably most importantly: Why on earth should we actually NOT care about developing countries too? After all, those countries are in fact the best indicators of our global economy’s deficiencies and home to 5 times the population of the so called developed countries.
What Batista says is by and large correct. The only question is: who should care about this? Or rather: who should get mad about this?
To Greece’s debt the bank bail-out via Greece’s balance sheet made no difference because it was only a change of obligors from previously private lenders to now official lenders. Greeks should actually be pleased because the official lenders offered terms which private lenders would never have even considered (tenors, rates). The level of Greece’s debt was not affected by this exercise.
The ones who should really get mad about this are the tax payers of the donor countries because they will now eventually foot the bill. And: they got nothing in exchange for doing that. Had the bank bail-out not been handled via Greece’s balance sheet, i. e. had one allowed Greece to default, many banks would have needed to be re-capitalized, possibly BNP and Deutsche as well. The tax payers would then have gotten something in exchange for their money, namely part-ownership in those banks. Yes, I am furious about this and I don’t quite understand why Greeks are furious about it, too.
The IMF is likely worried that its unprecedentedly large loans to Greece will be the source of its own first-ever losses – so Mr Batista’s words might be aimed at encouraging Greece to be annoyed with the Europeans and so choose the Eurozone and ECB loans for default rather than the IMF loans. Greece itself should of course default on them all.
Or, perhaps, formula57, Mr Batista is telling the plain and simple, unvarnished truth, a commodity that seems to have been in very short supply from the outset of the 2008 financial crisis.
Klaus –
This is worthy of note, because besides all the other ill thought out aspects of the Greek bailout, misrepresenting or masking the express protection of private financial interests is a lie.
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The bailouts of the “governments” of Ireland, Spain and Portugal were necessary because all three countries had just bailed out private banking interests to a point that depleted government coffers. In short, the governments were simply fund transfer agents for the banks, yet nowhere is there an outcry about irresponsible banks. At least the debts of the Greek government are really government debt, not camouflaged debts of private banking interests.
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Banks are a necessary element of national and global economics. Sadly, they have been allowed to become “too big to be allowed to fail”, and thus the risks and ill advised decisions they make are financed by “the people”. Thus, banks can operate as governmental dependencies with relative impunity. If German banks are not to be held accountable for risks they voluntarily took in lending money to a given client, then why do we even tell the lie that financial investment involves risks. If, as a private person, I bought a Greek government bond, the bailout would have had no worries about a default or a haircut bankrupting me. It was a risk that I voluntarily took. But using my tax dollars to prop up a bank that took the same risk (with other people’s money) and failed is a different story?
A lie is a lie, no matter how nice you decorate it.
@ Al F
Since I don’t see where you and I disagree, I cannot respond.
Klaus – while we do not disagree on the “mechanics”, Greeks should be upset with the deception, if, indeed the foreign banks were the primary reason for the bailout. Why? Because the EU, ECB and IMF claimed that the primary reason for the bailout was to assist Greece, and played down the human catastrophe that ensued because it was “in Greece’s best interest”.
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However, if it was for the banks’ best interest, then Greece’s decision to accept the bailout was on the basis of a lie. Default might have been a more prudent choice by and for Greece, because future decisions by the “Troika”, or whatever they are now called, will continue to be made in the best interests of the banks, not Greece. And when the banks have isolated themselves from the risks they voluntarily assumed, what will drive decisions?
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In short, Greece accepted the terms of the bailout on the basis of a lie. Yet the liars will never be accountable for this. Normally, the purchaser of financial instruments takes the risks. The bailout has undermined a major principle of such transactions, but only if the investor is a bank. Thus, they have licensed banks to make any and all risky investments without peril. THE Greek government (and people) are being held strictly responsible for their decisions of the past, and being expected to accept significant human suffering. Banks refuse responsibility for their investment decisions and are protected. Pretty good system, if you are a bank.
@ Al F
I don’t disagree with you but need to add something.
According to the IMF, 247 BEUR of rescue loans flowed to Greece from 2010-12, of which 206 BEUR went righ back to banks and ‘only’ 41 BEUR stayed in Greece.
41 BEUR looks small when compared to 247 BEUR but it is a huge amount when you compare it to nothing. I agree with you that European tax payers were misled when they were told that 247 BEUR was used to help Greece and Greece was offended when the world was told that 247 BEUR had to be sent there. But bear in mind that Greece couldn’t simply default back in 2010 because then it would not have received the 41 BEUR. Whatever was done then would have had to be a negotiated solution.
I had proposed then and I still maintain that this would have been the only way to go: (a) reschedule existing debt with existing lenders (“risk takers must remain risk carriers!”); (b) have official lenders provide Greece with the 41 BEUR; and(c) have European tax payers use the 206 BEUR to directly bail-out the banks and get bank equity in exchange. At least that’s the way it was successfully done when I was involved in the Latin American reschedulings in the 1980s.
Klaus
Well stated. I agree with your view and suggested approach, but for reasons we will never really know, the rather ill-advised path was taken. Sadly, it is impossible to know what was truly in the minds (and hearts) of the authors of the bailout. Even sadder is that it seems that two factors preclude a more enlightened corrective action. Pride of authorship and the political risk to austerity parties in other countries receiving aid. Perhaps the reduction of suffering of Greek people is in a distant third place, but I’m not convinced it is that high on the list yet.