The IMF’s Anger – and what it means for the Eurozone’s crashing Periphery

The IMF’s recent report on Greece constitutes the culmination of the Fund’s Mea Culpa regarding its complicity in a series of toxic bailouts that have contributed to the unfolding Kossovisation of the Eurozone’s Periphery. Back in March 2012 this blog reported on a preemptive strike by the IMF the purpose of which was to cover-up another foretold program failure. The IMF’s next step was to confess to major errors in the computation of fiscal multipliers; a recognition that the fiscal consolidation program imposed upon our hapless countries was never going to produce anything other than an intensification of the debt-deflationary crisis. (See this post which explained the unholy alliance between economic illiteracy and political expediency that led to those ‘errors’ and this more recent interview for my assessment of the IMF’s strategy vis-a-vis Europe at large.)

Last February, I was invited to give a keynote talk at a conference of law specialists working on the legal requirements for Europe’s much debated Banking Union. It was there that I came to realise the depth of anger amongst IMF officials against Germany, Frankfurt and Brussels. As one of them put it to me in no uncertain terms, “the Europeans forced us into a program for Greece that sullied the IMF’s image (sic)”. More importantly, the IMF was livid that Germany was proclaiming a banking union in order to ensure that it never actually happens. That it honours the idea of a Banking Union in the breach rather than in the observance.

Of course, there is little doubt that the IMF has only itself to blame for becoming an unquestioning member of a troika bent on ‘extending and pretending’, with catastrophic results for millions of people in Europe who will now join South East Asians and Latin Americans spitting on the ground every time they hear the acronym IMF. After all it was only a few short months ago that Mrs Lagarde went along, against her better judgment, with yet another monstrous reincarnation of the Greek bailout – as narrated in this post. Come to think of it, Mrs Lagarde was adopting a pattern first displayed by her predecessor: Disagree with Europe’s analysis and policies but, at the crucial moment, back down and legitimise these policies through complicity. (See here for my ‘political economy’ of DSK)

Now that all is said and done, what opportunities is the IMF’s confession opening up for Europe? My answer is simple and will upset many of my friends on the left side of the political spectrum: Europe’s peripheral countries must forge a tactical alliance with the IMF at least in the context of pushing for an immediate transfer of ownership, responsibility, powers of restructuring and management of our bankrupt banks directly to the ESM and the ECB. Only in this manner will our nations have a chance to breathe again, to rid themselves of Bankruptocracy and plan for the future with a smidgeon of hope. At least on this, the IMF may be willing to part ways from Berlin and Frankfurt. I can think of no better way of driving a wedge through the Iron Curtain of Austerian Misanthropy.