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IMF: Greece is high-risk state, should pay double contributions to EU Fund

“As a high-risk state, Greece should even pay more than twice the fixed contributions to a future European Financial Mechanism Fund,” the International Monetary Fund  said in a report released on Monday. But if this mechanism existed in the years of the crisis, Greece would receive much more money (as support) than the other eurozone member states, she added. It would receive an amount of 20% of GDP, th eIMF estimated.

IMF’s managing director Christine Lagarde said that eurozone countries should set up a “rainy day fund” that could cushion members when they hit economic hard times.

“For a relatively modest cost .. a central fiscal capacity could reduce the negative effects on output by more than 50 percent” during a crisis, Lagarde said in a Berlin speech, citing findings by IMF researchers.

Countries could pay around 0.35 percent of their annual gross domestic product into the common pot, which would pay out in times of need — on condition they upheld strict spending rules. Lagarde added that “in extreme circumstances, the fund would be allowed to borrow” if it needed more financial heft to back struggling nations.

The former French finance minister’s proposals throw the IMF’s weight into a mounting discussion about how to buttress the 19-country eurozone. French President Emmanuel Macron promised voters he would renew the currency area and equip it with a centrally-managed common budget, after years of crisis hobbled growth and sent unemployment soaring.

But while he hopes for support from German Chancellor Angela Merkel’s new government, smaller fiscally conservative countries like the Netherlands and Finland fear a joint promise of support would encourage bad behaviour.

Governments could spend more recklessly if they knew they were insured against financial difficulties, critics argue, a problem known to economists as “moral hazard”. Those are “legitimate fears”, Lagarde acknowledged.

However, “transfers from the fund should be conditional on a member’s compliance with EU fiscal rules,” which limit how much debt national capitals can take on and how large a deficit they can run.

The IMF chief added that it was urgent to put tools in place now before a crisis hits. Many observers have pointed to a window of opportunity for eurozone reforms that could close by the next European Parliament elections in May 2019.

Looking back to the eurozone’s financial crisis, Lagarde said “mechanisms were not in place, we were racing against the clock” in cases like Greece’s repeated bailouts. Governments could also make a common crisis-fighting fund conditional on progress in other areas like banking sector reform, she said.

But there should be a “meeting of the minds” among leaders as soon as possible, Lagarde urged. “Give the arrival point, agree on the general principle, give a timeline, and deliver… so that there is a sense of progress and some optimism that is so badly needed,” she said.

“Markets, investors, observers would know there is a collective determination to deal with moments of crisis” after such an agreement, Lagarde said. As for actually implementing the reforms, “if it’s a matter of five years, then so be it.”

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5 comments

  1. And there’s the punishment for refusing to join in the anti-Russia propaganda!

  2. The German banks have stolen so much, let them pay it in benefit of Greece.

  3. French deficit falls below EU limit for first time in decade
    –Financial Times article from yesterday…

    Spain has been in trouble with their deficit for the last 10 years…

    Arbitrarily pointing the finger at Greece. (ok, Greece has a rather weak outlook, but the EU is still measuring with 2 differents sets of rules).

  4. Some while ago a statement by IMF: – In economies without currencies of their own and with weak external demand, the adjustment has put an “extraordinary focus” on the fiscal effort. But the size of the adjustment “may have been excessive in these countries. –

    Being wrong doesn’t mean being stupid, it’s mostly a matter of being un-, or misinformed. It happens to all of us at some point. Although it’s hard to admit that your point of view was based on personal circumstances, political views, (non) religious upbringing or level of education, sometimes there’s no other solution than to admit that the arguments of others are better. As long as you think things thru as an individual there’s room for facts, historic perception and other people’s ideas and solutions. At some point – sometimes soon, sometimes a bit late – personal pride is swallowed and personal convinces are reviewed. That it’s much harder when you are part of a group, sharing the same (wrong) ideas about certain problems and ways to solve them, is a fact. It can take decades, even centuries for a group of people – a society – to see the wrong choices that were made and realise the consequences of actions taken.

    Institutions, gouvernments and politicians are rarely willing to admit they made fatal decisions. Files, rapports and other information is kept secret for decades, only to see the light when those responsible are long gone. The ones calling out to the world, warning for the disaster ahead, are pictured as misinformed lunatics, nutty scientist or in the worst cases State enemies. Even in a modern democracy, the other 49 percent is often pushed aside as just the angry or sore losers of an election. It’s not only a matter of national suppression of the minority, because of international agreements and even gouvernmental institutions, countries can make decisions that make other nations to become part – victim – of that dictatorial behaviour. “We won so we rule!”

    It’s pretty brave of The Independent Evaluation Office of the International Monetary Fund (IMF) to publish a report on multiple failures on interventions in Greece, Ireland and Portugal since 2010.
    Since the programs have prevented the crisis in the Eurozone – read: saved national banks in the northern countries of Europe – it has spread to other countries, over-optimistic economic forecasts, the incorrect measurement of the impacts of austerity measures and the way the budget adjustment is designed have been criticized, without preventing the countries’ debt from continuing to rise. Of course that is not enough reason for politicians as the Prime Minister of the Netherlands to firmly reduce the income of “friendly states” like Portugal by offering their biggest corporations to settle in a 5 square meter office in Amsterdam so they can avoid taxes. It seems to be forbidden to call The Netherlands a “tax haven” in the Dutch parliament, with 50,5 percent of the seats the gouvernment just acts like a temporary dictatorship and forces the opposition to literally “Shut Up!”

    – The programs supported by the IMF in Greece and Portugal have incorporated too optimistic growth projections. More realistic projections would have made clear the likely impact of consolidation on growth and debt dynamics and would have allowed the authorities to adequately prepare or persuade European partners to consider additional – and more concessional – financing, while preserving the credibility of the IMF as an institution independent and technocratic. –
    Strangely enough a lot of people knew that way before and warned about all the unrealistic measures. They warned that robbing a country of its assets – tax income, privatising state institutions by selling them to companies with an postbox in Amsterdam – would only make things worse, even more realistically would ruin the last standing bit of an economy.
    – In economies without currencies of their own and with weak external demand, the adjustment has put an “extraordinary focus” on the fiscal effort. But the size of the adjustment “may have been excessive in these countries. –
    The document questions the option of a pro-cyclical fiscal adjustment – with too many recessive measures that have worsened the economic situation – and economists can not justify that, for both Greece and Portugal, the deficit targets have been revised over the course of the program, in line with GDP growth, which contracted more than expected. To put it in simple words; The Portuguese gouvernment needed to work on inning more tax revenues while the ones who should pay a big part of these taxes were giving the opportunity to settle in Amsterdam, from where they could transfer their avoided taxes to some even better tax paradise. The income of profits from State owned institutions vapourized with privatizing measures that lead to foreign ownership and with that again the tax revenues ended up in Bermuda or Panama.
    This approach, of sucking all last resources out of a nation in need to save other countries’ national banks and financial institutions, the report explains, is based on the fact that the European Commission has deficit targets as a percentage of GDP, when the IMF usually uses nominal targets. When indexing the deficit to the GDP, there is a species of fish of tail in the mouth. As GDP declines, the GDP deficit increases, and further consolidation measures are needed, “exacerbating the contraction”.
    “This approach is self-destructive, as is the case of a dog chasing its own tail,” the report said. “In this perspective, the implementation of the programs was, detrimental to growth and, as a corollary, an enemy of debt sustainability.”

    In plain and simple words they admit they were wrong. Now of course we’ll never see a letter or hear a statement from the (almost extreme) far-right Prime Minister of the Netherlands or from that wannabe important former minister of finance Jeroen Dijsselbloem, who, by the way, was voted into the new parliament but resigned the day it became clear he had to except becoming a part of the opposition. In Fact, the laughing PM, Mark Rutte doesn’t even consider listening to European neighbours who slowly realize that things need to change. He still invites big multinationals to settle in Holland and, in contrast with other European gouvernments, goes as far as abolishing tax on dividend for foreign investors. (in Germany, Belgium etc. this tax is at least 20 percent) No, The Netherlands are not a tax haven for normal national businesses but a tax paradise for multinational corporations, among them the top 10 companies from Portugal.

    There’s a lot of criticism about the Portuguese (Left-wing) Gouvernment and, yes, there are a lot of issues that aren’t solved. Some of them out of political decisions but for a big part out of interference from powerful lobbyist representing exactly the ways of the Northern Europe capitalism. The unfettered journey to profit, which so painfully becomes clear in the case of Monsanto threatening with lawsuits if the EU would decide to ban a product that kills nature. There’s still corruption in Portugal, many rules that put a brake on economic growth. (building regulations, local regulations that are different from town to town, illegal import taxes, extraordinary leges on simple paperwork and permits etc.) The main problem obviously is the lack of (tax) income, instigated by all kinds of avoiding constructions made possible by some “friendly states” like The Netherlands and Luxembourg. In the last months people wonder why Portugal doesn’t have “national” equipment to fight the bushfires. The European answer to problems is “privatise” and so the fight is fought by competing companies who often (to be proven) make kartel agreements and who can only make profit if there are fires to be lushed. It’s like private hospitals that can only survive if there are enough people with an illness, toilet paper factories hating the automatic butt wash and dry toilets, pharmaceutic companies are relying on the demand for medicines and therefor adore food companies that make sickening products and Bono only needing a Pamana account if people actually believe the lyrics of his songs.
    The ones now protesting, the lunatics shouting out we are on the wrong track and the “state enemies” that so bravely inform the world about facts and the ways of crooked elite, will never read the hidden files, the rapports and the secretly made agreements. It’s going to take a few decades, maybe a century before these papers become public. Don’t expect any remorse or apology from future politicians, the capitalists, like Dutch PM Rutte, ruling now can’t even apologize for the wrong doings in history, infact they want to drive us back to the times of feudal systems…

  5. Invest in Greece MY ADVICE IS DON’T Unless you are corrupt its impossible to turn a profit.
    Massive Tax Fraud, corrupt government officials I want OUT after 15 years and near on €2 Million .