#Greece IMF wants credible plan for Greece

Opinion by Catherine Feore

IMF European Director Poul Thomsen has published a blog calling for a workable programme for Greece. The blog was timed to coincide with the Eurogroup meeting in Brussels (11  February) where finance ministers were discussing the first review of the Greek ESM (European Stability Mechanism) programme. The declared aim of the blog was to clear up ‘misperceptions’ about the International Monetary Fund’s views. The tone of the blog would suggest that Vice President Dombrovskis may be ‘misunderestimating’ the IMF’s objections to further participation in the programme.

In the blog, Thomsen makes it clear that the IMF’s participation in any future programme will not be dependent on socially draconian reforms, especially those required of the pension system. Indeed, he argues that it would be counter-productive to implement further draconian fiscal reforms in an already severely depressed economy. Thomsen does not deny that pension reform is needed, but argues that this must work in tandem with debt relief.

Pensions need to be brought into line with norms, but introducing further pain at this stage is unlikely to produce the requisite gain and is likely to make the situation worse. Indeed, while the EU remains wedded to the zombie notion of growth-enhancing fiscal austerity, evidence would suggest that this is particularly self-defeating when combined with low demand and low interest rates.

While Thomsen acknowledges that an agreement on debt relief will be difficult, he argues that the decision cannot be “kicked down the road” and argues that it is simply unrealistic to assume that “Greece can simply grow out of its debt problem without debt relief—by rapidly transitioning from the lowest to the highest productivity growth within the eurozone”. Thomsen describes this quite simply as “not credible”. Rather than helping Greece on the road to recovery “a plan built on over-optimistic assumptions will soon cause Grexit fears to resurface once again and stifle the investment climate”.

When asked about debt relief before the meeting, the Eurogroup president’s reaction would suggest that debt relief was some time away:

While the current Commission pays much lip-service to ‘evidence-based policy-making’, sometimes it’s just more politically expedient to stick one’s head in the sand.

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