The International Monetary Fund is divided over the Greek Program. Poul Thomsen, the head of IMF’s European Department, now openly supports that the IMF should overall exit the Greek Program.
In his report, Thomsen contends that the problem is not only economical because Greece is considered as “non repairable” but also because the European project develops, the problem is profoundly political and that no Greek government will be able to save
He is skeptical if Greek reforms under the current euro zone bailout can deliver the fiscal targets set by the lenders.
According to IMF’s own calculations, he reforms Greece has undertaken would produce a primary surplus — the amount of money the government has before debt servicing — of 1.5 percent of GDP.
The euro zone’s program, however, expects these reforms to produce a surplus of 3.5 percent, Thomsen said.
“We can support a program that is based on a primary surplus of 1.5 percent. If Greece and its European partners want to agree on a program with a more ambitious fiscal target, we need to see how it adds up,” he said.
“We do not think that the program that is on the table is consistent with more ambitious targets, and I am not talking about targets for next year and the following year, but over the medium term,” he said.
He said the IMF was preparing a Greek debt sustainability analysis (DSA) which it would release in December, along with its regular evaluation of the Greek economy.
“If you want to have a DSA that has a (primary surplus) target higher than 1 .5 (percent of GDP) we want to see the reforms that justify that,” Thomsen said. via Reuters
Poul Thomsen presses for further ‘reforms in pensions’ which translates in more cuts as well another reform in taxation system, which will exterminate what Thomsen calls “large exemptions from taxation of households.”
He said that while Greece undertook a pension reform, it only reduced the annual 10-11 percent of GDP deficit of the pension system by one percent of GDP.
Athens still had to address the issue of exceptionally large exemptions from taxation of households, which in Greece reached 60 percent, compared to single digits elsewhere in Europe, Thomsen claimed.
However, IMF’s Managing Director does not show signs of intention to abandon the Greek program, she just presses Greece’s European lenders, particularly German Finance Minister Wolfgang Schaeuble to proceed with debt relief.
But the German government has clearly stated that there cannot be any discussion on the issue before the German elections in September 2017. Of course. The conservative wing of German coalition, the CDU/CSU, cannot afford to risk losing more voters due to another hot potato like “more concessions to Greeks”. It considers the Refugee Crisis as a problem big enough to push its arch-conservative supporters to the arms of xenophobic AfD.
PS I remember that we have been saying already in the first and the second Memorandum of Understanding in 2010 and 2012 designed and drafted by the IMF that the projections of primary surplus targets were not realistic. The IMF insisted, it later admitted its errors. Too late for millions of impoverished Greeks. It’s now the turn of Schaeuble to admits errors but for the time being he is still whistling alone in the woods.