IMF backs (ever so peculiarly) the SYRIZA government’s debt assessment

Debt relief ought to be at the centre of negotiations over a New Deal for Greece. That has been our government’s mantra from 26th of January, our first day on the job. Exactly five months later, on 26th of June, the IMF has conceded the point (as evidenced earlier today by the NYT) – on the very day Prime Minister Alexis Tsipras called for a referendum so that the Greek people could reject an IMF-led proposal that offered no… debt relief.

The IMF’s latest debt sustainability analysis (DSA) is a fascinating read:

For the first time, the IMF recognised that, in its fifth review assessment, there was a low probability that Greece’s public debt would prove sustainable.

Here is an extract from the IMF’s own report confessing that, to portray Greek public debt as sustainable (without substantial debt relief), its researchers had to make the assumption that “…Greece would go from having the lowest average total factor productivity (TFP) growth in the euro area since it joined the EU in 1981 to having among the highest TFP growth, and that it would go to the highest labor force participation rates and to German employment rates.” Pigs would, of course, sooner fly!

When asked how productivity growth would do the ‘pole vault’ from the euro area’s lowest to the euro area’s highest levels, with employment recovering fully (and in the absence of credit and investment), the IMF’s standard answer is: “To achieve TFP growth that is similar to what has been achieved in other euro area countries, implementation of structural reforms is therefore critical.” But, Chapter 3 of the IMF’s April 2015 World Economic Outlook report tears this assumption to pieces. Indeed, the IMF’s own research shows that labour market reforms have a negative impact on total factor productivity while product market reform has a neutral one.

Returning to Greek public debt sustainability, this latest DSA (debt sustainability analysis) by the IMF could not be blunter. In fact, it is even ‘ruder’ to official Europe, that remains in denial of the need for any debt relief, than we – the SYRIZA government – would imagine being: Without a haircut, the IMF claims, not even fifty years of austerity (i.e. a primary surplus of 2.5%) would suffice to reduce debt to sustainable levels – see graph. Screen Shot 2015-07-03 at 2.06.18 AM

“It is simply not reasonable”, also argues the IMF’s document “to expect the large official sector held debt to migrate back onto the balance sheets of the private sector at rates consistent with debt sustainability”. Of course it is not![1]


Puzzlingly, all this fine research by the good people at the IMF suddenly evaporates when IMF functionaries coalesce with their ECB and the European Commission colleagues in order to impose upon our government their chosen policies. On 25th June we were presented with their ultimatum that centred upon zero debt relief, gigantic austerity (3.5% in the medium term), and more of the same labour and product markets’ ‘reforms’.

  • Never before has a veritable institution advocated policies that clashed so mercilessly with its own research.
  • Never before has the IMF agreed, on economic analysis, with a government it sought to devastate.

[1] One wonders why it migrated to the public sector balance sheet in the first place. Could it be that this was accomplished by the failed IMF-driven programs of 2010 and 2012?


  • Reblogged this on ΤΡΕΛΛΗ ΣΑΡΑΝΤΑΡΑ and commented:
    Απορεί και εξίσταται , δικαίως, για την όψιμη σπουδή, μετά από σκληρότητα ετών, του ΔΝΤ, να χαρατκτηρίσει το χρέος μη βιώσιμο.

    • I never implied there was a sinister plan here. However with a concentration of power in Brussels without any democratic safeguards, a county who joins the Eurozone, giving to them entire control of their banking system, in effect gives them to power to paralyze their economy and dictate their terms.

      The case of Greece is particularly bad, because the PSI terms give the OSI Creditors virtually ‘debt in possession’ terms upon Greece. That was a complete disaster.

      The Creditors want to remove Yanis as negotiator, and manipulate a new government that will capitulate to their terms as have previous Greek governments, who hid this from the general Greek public.

      Frankly, I do not like SYRIZA and its politics, but I do not see much choice but to support Yanis in his negotiations. A ‘yes’ votes gives Creditors a free rein. It would be criminal and even treasonous to do this.

    • @Diran Majarian

      I agree that what EU currently tries is simply a coup d’état. Frankly, I can’t particularly like Syriza either(I’m E Europe – left is… not very popular here :p). Have to ackowledge that I consider Marx a good economist(God knows why he wanted to be an ideologist too – the guy had the empathy of a rock).

      “However with a concentration of power in Brussels without any democratic safeguards” – this is effect, not cause. This is the path of least resistance. Same as I don’t think paralyzation is intended. It’s a side effect of creditors’ panic.

      my problem is syriza’s path. Train is running. Destination: abyss. Just jump. Yeah, it might be unpleasant, the train might look like running way too fast, but… what other options do you have?

      referendum was a mistake. Exit. Especially as this is a weird bunch that doesn’t seem intended on clinging onto power.

      Can’t believe I end up agreeing with the left wing of a leftist party. Life sure has it’s ways of making fun of us =))

    • The PSI was a complete disaster because Venizelos is an unsophisticated moron without any clue about modern finance. The effing guy is a retiring constitutional lawyer for crying out loud. In other words a complete and total ignoramus.

  • Yanis, how you see an problem conceptually determines your course of action. You been correct conceptually on the economic imbalances in the Eurozone and the unsustainable debt. You understand debt deflation and its consequences, which makes you a lone voice in the weird world of the EU elite, imbued in Gold Standard 1930’s economics.

    Where you fall short very badly is your failure to understand conceptually the European Union as some kind of friendly democracy. In effect, the EU is highly centralized colonial system with the sheepskin of democracy. I have always found it much closer to the Soviet Union, which was the continuation of the Tsarists imperial system in Central Asia under the vestige of Socialism. As Wolfgang Munchau wrote back in 2012, Greece in the first EU member state effectively in full colonial status. The first thing that an occupying power does when they invade a country is to establish their own currency.

    The Achilles Heel of the Colonial System is that it is dysfunctional economically and very expensive. The EU exhibits clearly this problem. If you judge their handling of Greece, it is been an economic disaster and they making it more expensive and compounding the losses every day with their stranglehold on the Greek banking system in full tourist period.

    I would just a ‘yes’ vote the most likely outcome in the Sunday referendum. I do not think that the EU wants to ‘negotiate’ with you or the present government. As you have admitted (and previous Greek governments have concealed), the EU does not negotiate. Brussels rules by ultimatum Soviet style and there is scandalous abuse and manipulation of the IMF to advance their political purposes. In all likelihood, the EU will require a new puppet government in Greece to carry out their program. They will likely follow the Cyprus model in punishing the population for revolting.

    You have to decide whether you can accept the EU gulag that it is. The only silver cloud is that like all colonial systems, the EU is economically and financially unstable. It is not an efficient system. Eventually it will collapse on its own weight at great human cost.

    You are lucky that at least you can go back to a comfortable university position, say in the States and even write a book about your experience. Greeks so far are docile, without national pride and happy to accept their colonial status, but I am wondering for how long as reality begins to sink in to them.

    • Where I think you’re wrong is in assuming that there’s some plan for this colonial system. While I agree the EU starts to look more and more like the old SU(and that mr. Varoufakis was abit naive, to say the least), I doubt it is the result of some devious plan.

      The euro was simply an attempt to create an European superstate through the backdoor(won’t comment on the merits of that). Why that backdoor solution was required in the first place is the fact that people don’t want that superstate. This started the gravy train.

      Now, with the train in full motion, the situation is even worse(people want even less that superstate). And that prevents any crisis from being solved properly. There simply isn’t political capital anywhere for adopting the correct solution.

      This(sovietization) is simply the path of least resistance. As all actors are stucked with no room to move whatsoever. Which makes Syriza’s attempt admirable, but pointless.

      The main result will be a lost generation on most of the continent. Which(beside obviously making life hell for those people) will amplify the current demographic problems Europe has.

      where I think Syriza was wrong was in not straight taking Greece out of the EU. At most, the cost would’ve been 20 years/1 generation(assuming they’d get a dictatorship and full menu in the ensuing chaos). Not acting now simply adds up to that cost the amount of time it’ll take for Germany or France to start shelving the project(again, I don’t think it was a conspiracy to begin with). After it’ll be dismanteled, those 20 years/1 generation will still have to be payed.

    • Yanis was not naive. He deliberately placed confidence on a system for the purpose of exposing it. It is the proverbial Yanis’ giving enough rope to pseudo-collaborative Europe to hang itself.

  • I watch the German talk shows almost every night as they “debate” the Greek question. Nobody has the nerve to say that the whole process of the “negotiations” was really just a PR campaign whereby the Euro leadership (led by the Christian Democrats in Germany) systematically undermined Syriza because such a left wing party is a threat to their power. Syriza was to be out as incompetent, ungrateful and unable to rule while the Euro leadership filled the airwaves with tales of their generosity. When the “yes” vote comes in as it surely will, they will have indeed succeeded because you and Syriza will be gone and discredited. Why has NOBODY, including you, not mentioned this underlying agenda?

    • A lot of discussion, too, of NSA spying on German government officials I would assume given the latest Snowden revelations.

    • There was never any intent to compromise in these negotiations. The german objective has been to humiliate Syriza and engineer regime for reasons of strict compliance and dead-end obedience. In other words typical Prussian behavior which in Greece has less than 1% chance of success.

  • Later today, I received a plea from the Greek Shipping community to vote ‘yes’ on this referendum. Among the people, were some well-known Greek investment bankers and generally a very financially savvy crowd. I was flabbergasted at what I regard as this craziness. They would vote ‘yes’ to give a ‘carte blanche’ to EU Creditors, who effectively have obtained ‘debtor in possession’ terms for their bailout money so that these Creditors can put the country to its knees and extract the last penny from the Greek economy. These are the very key issues that Yanis Varoufakis is putting red lines: to obtain some serious debt relief and to reduce the exorbitant surpluses that Creditors are demanding. Whereas yesterday talking with a Norwegian Banker friend, it was his opinion that this was exactly the games plan of the Creditors. How could seasoned business people be so naive and foolish to want to undercut Yanis and bring back the previous people to capitulate to every point in Creditors demands???

    Of course, we do have big issues for preservation of Law 89 and the offshore status of Greek Shipping companies for the preservation of the Greek maritime franchise, but this exactly what the EU Creditors are pressing the Greek government to eliminate. The shipping people somehow hope that a new government will save them on this matter, but capitulating to Creditors demands and asking the return of people from the previous government is hardly going to save them from this.

    I wrote them a general letter about this that I am attaching below. I am personally supporting Yanis and voting ‘no’ albeit I do not vote for SYRIZA. I leave people to vote per their conscience, but the Euro has been a dreadful experience for Greece and a general disaster.

    My friends:

    As businessmen, we have to see this situation for what it is and not what we hope. Forget all the political double talk from both the EU and Greek political class.

    I do not like and did not support this government. I do not feel that this referendum will resolve anything. Nor do I think that a ‘yes’ vote will lead to any hopes for a better tomorrow or even a return to the ‘status quo ante” for Greece.

    It will take weeks to restore the banking system at best. The EU creditors will likely demand a new government for a restart of negotiations. That will take some days at best. Approval of their program and more bailout money will take more time. Creditor demands will sink the Greek economy in even deeper recession. Greece will remain deeply insolvent. I do not see anything on the horizon from the EU or Greek political leadership that will reverse this failure path. Nor do most serious economists.

    The Greek economy is under total control of EU Creditors. They regard this bailout money advanced as debtor in possession financing. They intend to extract whatever they can for repayment from Greek national resources. Greece is not likely to get out this insolvency situation for many years.

    Among other unpleasant things, it is almost certain that the EU Creditors will phase out Law 89 and end Greek offshore shipping to the detriment of our industry. Looking back, we have been very foolish about the consequences of all this:

    • Greece should have followed the example of the UK, Sweden and Denmark opting out of the Eurozone and keeping its national currency.
    • Greek entry into the Eurozone with its already unsustainable debt load and failure to meet objectively Mundell criteria for optimal currency zone participation was a highly risky and rather irresponsible action of the Greek government at the time.
    • The Eurozone experience in Greece has been a disaster.
    o Even in the initial honeymoon period, the Euro and artificially low interest rates unleashed destructive credit bubbles in real estate and household over indebtedness. The Euro decimated the Greek balance of payments, destroyed what little local production there was and made the country dangerously import dependent even for basic foodstuffs.
    o In turn, increasingly negative trade balances further exacerbated public sector debt load until the 2008 GFC finally broke the camel’s back and the market become aware of the ensuing credit risk that was so mispriced.
    o The Eurozone/ IMF work out since 2009 has been disastrous. Bottom line is that after so many governments, the PSI restructuring and two separate bailout programs, Greece remains more insolvent and with a bigger public debt load than ever.

    We can expect that EU Creditors will restore a new government, where there will be the same people, who will repeat the same things that have failed in the past with the same results that have led to the current mess. The resultant economic dislocation will further exacerbate the social turmoil and radicalize middle class voters. We already have a disintegrated political system and it is likely to get worse with even sharper divisions.

    We are gradually looking more and more like a former Eastern bloc country. We can expect further emigration and population loss of younger, educated Greeks. We will be more and more a country of very low wages, permanently high unemployment and an economy of very little added-value. Whatever jobs created will not require more than low labor skills that can be covered by immigrant workers.

    Among the better paid jobs for more educated people lost will be those in the Greek shipping community. A large number of ICS graduates will not find jobs. Shipping firms abroad are already flooded with CV’s from young Greeks, many who have Master degrees from places like Cass. None of these young people will have the opportunities to better themselves in Greece that we had prior Greece’s entry in the Eurozone.

    Such are our EU prospects for which our political class feel such pride, advocating a ‘yes’ vote. It is really macabre.

    Have a good week end and God help us!

    Diran Majarian

    • Perhaps, Yanis, could comment on why financially savvy investment bankers with experience in corporate bankruptcy and reorganization could take such an absurd position to vote ‘yes’ to EU Creditors proposals, giving them effectively a ‘carte blanche’??? Or that their hopes to bring back the discredited Greek political elite, will somehow resolve these problems and lead to a better tomorrow for Greece??? Doesn’t make a lot of sense to me!

  • Economics is not just about curves and numbers. It is aalso about people, their intentions and their acts within an economic, political and social system. If certain senior employees created in an organization where they are employed an union, which prevents from more talented new employees to bring positive changes to the organization (and I am not against the unions as principle, only if it fights for self destructive policy ) its damage to economy can’t be quantified. If certain entity becomes a monopoly and increases the prices of the products, it’s negative influence is also not measurable in the GDP. If highly educated young Greeks can’t get jobs, because the senior less educated and less effective Greeks are protected by laws, unions, professional guilds, etc. the negative impact of this state on the GDP is also not measurable.
    So if Greece wants to overcome its problems, reduction of its debts is not enough. Somehow this economic train has to be relocated to a different track.

    • There is no train to be relocated. The Greek economy has two main engines with comparative advantage: tourism and its merchant fleet. The rest about transforming Greece into an industrial nightmare like Germany plus a junkie habit of trade surpluses is uber nonsense,

    • I agree 100%- just with small addition. 1.Tourism would put Greek economy to a income level of a typical tourist industry state, like for example Tunisia or Costa Rica, which is about half of the today’s Greek level.
      2. The ship industry may be a great income generating activity for the shipowners like Onassis family, but have no effect what so ever on the income of Greece and Greek people.

      So there is no way to overcome the obstacle, that the monopolies, cartels, unions, oligopolies etc. have to be deconstructed. The time came for the young generation, who are better educated and more skilful than the old ones to take over.

  • Puzzlingly, all this fine research by the good people at the IMF suddenly evaporates when IMF functionaries coalesce with their ECB and the European Commission colleagues in order to impose upon our government their chosen policies.

    I see what you mean — says one thing, does another. Bur not surprising at all. To quote political economist and artist Rob Urie, the “IMF is a tool of Western economic power used to extract wealth from poor countries under the contrived apologetics of the ‘market’ economics it claims as its goal.” (*)


  • Where is the support from the rest of the Europeans? From the Spaniards? From the Portuguese? From the Italians? I don’t see any outpouring of support from them. Do they not realize that they are next in queue?

    Greece stands alone.

    • You fool. What happens to one EU country can happen to all the others.

      Lest you have forgotten, the Spaniards, Portuguese, and Italians are part of the same political and monetary union as … Greece! It ain’t called the European UNION for nothing!

      A European country is being sacrificed on the altar of neoliberalism and the rest of Europe stays silent. And it’s OK … only a Greek thing … no need for the rest of the people of Europe to concern themselves about it? Greek, not European!

      What nonsense you spout, Plassaras!

  • When it comes to carrying the neoliberals’ water, the New York Times .does it proudly. This is what the rag had to say yesterday about the Greek Prime Minister’s economic advisors:

    Nikos Pappas … “hot-tempered”

    Yanis Varoufakis … “a polarizing economics professor”

    For Mr. Tsipras and his two main advisers — Nikos Pappas, a hot-tempered Scottish-trained academic with a decades-long friendship with Mr. Tsipras, and Yanis Varoufakis, a polarizing economics professor who had spent more than a year schooling Mr. Tsipras in the intricacies of eurozone politics — the rebuke seemed to confirm their most pessimistic views.

    “Hopeful Start to Greek Debt Negotiations Quickly Soured” —

  • From the Financial Times:

    “Greek banks prepare plan to raid deposits to avert collapse”

    Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.

    The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

    When the neoliberal press is not mocking the Greek government (see NYT article below in another posting), it is scaring the bejesus out of the Greeks. But no worries, folks, are resident poseur Plassaras here says this is all “irrelevant.” I mean, how can this affect public opinion before tomorrow’s referendum? How?!