Having bent its own rules, and after turning a blind eye to its own experts’ assessment of the sustainability of Greece’s 2nd ‘bailout’, the IMF is now preparing for failure. Ms Lagarde found it hard to convince her board to go along Europe down the path of locking Greece into yet another unsustainable future.
Had the IMF applied its own strictures, it would never have offered another truckload of SDRs to a country that managed the feat of defaulting and increasing its debt at once. Just like with the first ‘bailout’, the writing is on the wall: Greek debt will again prove unsustainable only, this time, it will be the official sector’s monies that will face the chop once the chickens come home to roost.
So, what does the IMF do to cover its tracks, and to limit the fallout, once the failure of the new Greek program becomes evident? It issues an official report which predicts the said failure but couches it in a way that minimises the IMF’s responsibility for having indulged the Europeans along the lines of an inane program.
“Greece remains “accident prone” the report says and, for this reason, it may another default and another bailout. When will this happen, according to the IMF? [I]f it struggles to implement measures attached to a new €130 billion bailout…”
Note the subterfuge. Greece will fail if it struggles. The hypothetical ‘if’ pressed into service to turn what is a tautology into something like a causal explanation. Instead of saying “Jill will crash her car”, the same sentence appears more ‘analytical’ by rephrasing it as follows: “Jill will crash her car if she loses control of it.”
“If the program goes off track, Greece’s capacity to meet its obligations to the fund would hinge critically on the willingness of European partners to continue to backstop Greece’s payments capacity and the Eurosystem’s capacity to backstop bank liquidity while further efforts are put in place to stabilize the Greek economy,” the IMF report warned.
The gist, of course, lies in the fear that the IMF will lose its dough if the Europeans do not come up with another ‘bailout’ loan, in view of the certainty of the current program’s failure. To cover up for the fact that the IMF should never have accepted to participate in the present sham of the program, its report utilises the full panoply of a single word: of the hypothetical ‘if’. Note the way the last quoted sentence began: “If the program goes off track…” The tragic truth here is that everything that follows that hypothetical (i.e. the repercussions of the 2nd Greek bailout’s impending failure) will happen with mathematical precision even if the program remains on track. Assuming that the Greek government sticks to its implementation (fiscal adjustment, structural reforms etc.), the elephant in the room is that the utter lack of liquidity and the dearth of demand (both of which are getting exponentially worse, daily) will guarantee the translation of the implemented cutbacks into lower tax revenues, even lower growth and stubborn deficits.
The IMF’s strategy is clear. They were forced by political considerations to back Europe’s unsustainable 2nd Greek program. They know that its failure is predetermined, as it was foreshadowed by the IMF’s own sustainability analysis. They fear that the next logical step is a partial write down of official sector debts, including the IMF’s. And what they do? They use a contrived hypothetical, a little ‘if’, to turn a tautology into an analytic-looking thesis so as to cover their track and do that which has become a bit of a habit recently: blame the Greek economy for not responding to poison as if it were the appropriate medicine.