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A long-brewing rift between the IMF and the EU over the failure of their austerity programmes in Greece burst into the open on Thursday following an informal IMF press-briefing of Greek correspondents in Washington.
Thursday morning reports from that briefing on Mega and Ant1 TV channels said that the IMF mission staff in the troika sought to distance themselves from a "counterproductive set of austerity measures" imposed on the country under the insistence of the EU side.
The reports came in the wake of the talks which the IMF managing director Christine Lagarde held on January 10 with German Chancellor Angela Merkel in Berlin and French President Nicolas Sarkozy in Paris.
No official press conference or communique was issued after Lagarde's shuttle meetings. But leaks in Handelsblatt and other EU newspapers on January 11 said that the IMF head had warned Merkel and Sarkozy that the parameters of the second bailout package for Greece agreed on October 26 had changed.
Lagarde reportedly said that, given the deterioration of Greek fiscal and economic data, the new bailout loan should be increased by "tens of billions of euros" from its original 130bn euro loan target.
Furthermore, the IMF estimated that the Greek debt held by private bondholders would require a haircut of more than 50 percent (or 100bn euros) of its face value in order to become sustainable, especially if a significant minority of investors refuse to participate in a "voluntary" private sector involvement (PSI) deal.
The senior IMF sources in Washington noted that there were "unprecedened delays" in the proper implementation of fiscal and structural reforms linked to the first 110bn euro bailout programme. Instead, "horizontal austerity measures are constantly being adopted that are leading nowhere, whilst further wage and pension cuts are unjustified because the only way to improve competitiveness is through growth-creating market liberalisation, the opening of closed professions and productive investments".
Rather than pushing through blanket wage cuts on underpaid groups of employees in the public and private sectors, the IMF sources stressed that selective reductions in exorbitant salaries and closure of wasteful work stations needed to be introduced in dozens of public utilities (DEKO) and other state agencies "in order to attract foreign investment".
"We have spoken repeatedly about reforms in the labour market to the extend that certain elements in the structure of the Greek state constitute a hindrance to the creation of new jobs," the IMF sources were quoted as saying. "We have said that this leads to rising unemployment and something must therefore be done about it," the sources added, without including the private sector minimum wage or the summer and Christmas bonuses among the measures that could overcome such bottlenecks.
The senior IMF sources speaking under condition of anonymity also said that IMF mission chief in Greece Poul Thomsen would probably not join his counterparts from the EU (Mathias Morse) and ECB (Klaus Mazouch) in their next inspection trip to Athens on January 17, underlining the seriousness of the clash between the troika's twin pillars.
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Hey, if the IMF wants more generous support for Greece, even though that money would probably vanish like a snowball in hell, because of the horrible state of the administration, they should go ahead! If the US and UK want to spend their money on bailing out Greece, great.
Not gonna happen, of course. It's easy for Lagarde to call on others to throw their money into a bottomless pit, but she knows damn well that most of the IMF's funding nations won't support much more generous subsidies for Greece. Nobody shows any enthusiasm about spending billions under conditions that would only produce yet another short lived bubble.
So, the only realistic way to improve the situation still is getting the debt cut down (or defaulting and leaving the eurozone), higher tax revenue (which requires a serious improvement of tax collection) and to attract more foreign investors (which requires more privatisation, plus reforms of all the legal, judicial and economic roadblocks). Exactly what the trojka demands since a long time now. There is no easy way out, no shortcut to instant recovery. Greece has to systematically change before the situation will become better. It took Argentina several years of hardships to get out the economic crisis, too, and imho their challenges weren't as difficult as those facing Greece now.