Financial Times
May 7, 2010
The economic adjustment programme agreed last weekend between Europe, the International Monetary Fund and Greece will be considered, and approved, by the IMF's executive board soon. Early satisfaction with the programme has given way to serious market doubts about it. These doubts are rational because the fiscal arithmetic simply does not work. For the IMF, this programme represents a squandered opportunity because it could have been ahead of events and designed a much better programme, specifically by facilitating orderly debt restructuring. Instead, we could end up with a programme that is inequitable, perverse and unsuccessful, with much greater costs all around.
When the Greece saga began, the mantra of the German government and many purists in Europe, including the European Central Bank, was: "no default, no bail-out, no exit". European private-sector holders of Greek debt would be spared any pain (no default). The European taxpayer would be protected (no bail-out). And European companies would be shielded because Greece could not devalue its currency (no exit). That left one and only one policy measure that could be brought to bear on the problem, namely a fiscal austerity programme, with the average Greek citizen bearing all the burden of adjustment. Europe, in short, had defined this to be an exclusively Greek problem.
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