Solidarity with Greece will render its debt sustainable

by Klaus Regling

Financial Times
February 9, 2017

Greece has been under financial assistance programmes for almost seven years. There have been delays, concerns and real drama that brought the country close to leaving the eurozone. There has also been a lot of progress in making the Greek economy more competitive. But for many, Greece remains synonymous with bad news. Few were surprised, therefore, when the International Monetary Fund recently stated that the country’s debt was on an explosive trajectory.

A sober look at the facts shows that Greece’s debt situation does not have to be cause for alarm. The European Financial Stability Facility and the European Stability Mechanism, the eurozone’s rescue funds, have disbursed €174bn to Greece. We would not have lent this amount if we did not think we would get our money back.

Much has already happened to ease the country’s debt burden. Both public and private creditors have made unprecedented efforts to keep Greece’s debt sustainable. No other country in the world has ever received greater debt reduction. In 2012, private investors took a haircut on their holdings, scrapping €107bn in loans from Greece’s books.

Then, public creditors eased lending conditions significantly. This reduced the economic value of the country’s debt by around 40 per cent. As a result, Greece enjoys budgetary savings of about €8bn annually — the equivalent of about 4.5 per cent of gross domestic product — and will continue to do so for years to come. This does not lead to budgetary cost for European taxpayers. However, they do take on risks.

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Conflict over Athens’ surplus needles the IMF

Financial Times
Editorial
February 9, 2017

With much of the eurozone economy humming along nicely, and the sovereign debt crisis that engulfed the single currency region having largely receded, it is easy to forget that the country where it all started is still deep in trouble.

This week the enduring problem of Greece took a new and disturbing turn. It was revealed that the executive board of the International Monetary Fund is split on the question of what fiscal surplus Greece should be required to hit — which in itself will affect whether it needs official debt relief to reach sustainable growth.

Disputes between the IMF and the eurozone governments are hardly new but the fact that the fund admitted a division between its member countries is significant. European nations are over-represented on the board relative to their size in the global economy. Wielding that power to dissuade the fund from demanding debt relief from eurozone governments is a clear conflict of interest and poses a threat to the fund’s credibility and independence.

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Worries Grow Over Euro’s Fate as Debts Smolder in Italy and Greece

by Landon Thomas Jr.

New York Times
February 8, 2017

Even as global stock markets climb, worries are building among investors that long-simmering debt troubles in Greece and Italy will put additional strain on the euro.

Over the past year, aggressive bond buying by the European Central Bank and encouraging signs of economic growth across Europe have helped the eurozone overcome a series of political jolts, including Britain electing to quit the European Union and Italian voters rejecting the proposals of a reform-minded government.

Yet with the central bank expected to eventually unwind its purchases of government bonds and other assets, investors are increasingly becoming concerned about how Europe — and Germany, in particular — can cope with escalating debt pressures in Italy and Greece.

The result has been a sell-off of European government bonds as investment funds reassess the risks of holding such securities. In Italy, for instance, some hedge funds are making direct bets that the prices of Italian bonds will collapse.

The yield on Italy’s benchmark 10-year note — which moves in the opposite direction of its price — has doubled to 2.3 percent since late last fall. The yield on the equivalent Greek note has jumped to nearly 8 percent from 6.7 percent at the beginning of the year.

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Greek Government Divided Over Deadlock in Creditor Talks

by Nektaria Stamouli & Marcus Walker

Wall Street Journal
February 8, 2017

The Greek government is split over how to break a deadlock with creditors that has revived bond-market jitters and talk of “Grexit.”

Some aides to Prime Minister Alexis Tsipras are pressing for immediate fiscal concessions, while others are pushing for a tough stance toward the government’s creditors and the International Monetary Fund, Greek officials said.

The debate within the government, which is led by the Syriza party, comes as the IMF haggles behind the scenes with the German-led eurozone over the duration of Greek austerity and the cost of debt relief.

Amid the wrangling, doubts are mounting in financial markets about whether Greece can fulfill the tough terms of its latest, €86 billion ($91.9 billion) bailout plan, signed in 2015. The bailout was Greece’s third since 2010 and is encountering the same problems as the others: Repeated fiscal retrenchment is straining Greek politics without restoring confidence that the country can grow and recover.

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The IMF Staff Has It Right on Greece

by Mohamed A. El-Erian

Bloomberg
February 8, 2017

When the International Monetary Fund’s board met Monday to discuss Greece, it was heartening to read that “most Executive Directors” agreed with the staff’s view that the country’s debt, at 179 percent of gross domestic product at the end of 2015, was “unsustainable.” Yet “some directors had different views on the fiscal path and debt sustainability.” This division within the board also applied to what Greece still needs to do with its budget. With the medium-term primary fiscal surplus heading to 1.5 percent of GDP, “most Directors agreed that Greece does not require further fiscal consolidation at this time.” But, again, “some Directors favored a surplus of 3.5 of GDP by 2018.”

Despite the backing of a majority of the board for the staff’s technical assessment that Greece does not need to tighten its budget screws further but does require debt reduction, the institution is still unable to break a deadlock that harms the country, undermines the integrity of the euro zone, and puts the IMF’s own finances at some risk. Understanding why sheds light on the outdated governance that still plagues the IMF’s good functioning, dents its global standing and weakens its effectiveness.

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Greece’s Financial Odyssey: Pushing Back Against Austerity

by Marcus Bensasson

Bloomberg
February 7, 2017

Greece fought austerity and austerity won. When Alexis Tsipras, the brash young leader of a left-wing party, became prime minister in January 2015, he vowed to stop taking the economic medicine that shrank the country's economy by a quarter, saw more than a million jobs disappear and drove thousands of Greeks below the poverty line. His European counterparts, who had lent Greece more than 200 billion euros ($215 billion) to prevent its default, had a simple response: no. Six months later Greece's banks were shuttered, its stock market was closed, the economy was falling back into recession and the country stood on the brink of expulsion from the euro zone. Tsipras blinked, accepting a new bailout on terms harsher than those he had rebelled against. For more than a year, an uneasy peace held between Athens and Brussels, and Greece's place in the euro seemed assured. But the International Monetary Fund, which is barred from lending to countries unable to repay their debt, in early February 2017 said it didn't think Greece could meet fiscal targets set in the 2015 bailout. That makes it hard for the fund to remain as a creditor. It also threatens to unravel the 2015 deal; the IMF's commitment is necessary to keep Germany and other states as creditors. Wide divisions among euro-area states over the common currency and upcoming German elections further complicate any resolution.

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The new IMF Report for Greece

IMF
February 7, 2017

Greece: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Greece

Despite the policy constraints imposed by its membership in the currency union, Greece has made significant progress in unwinding its macroeconomic imbalances. But extensive fiscal consolidation and internal devaluation have come with substantial costs for society, which contributed to delays in reform implementation and to policy reversals since the last Article IV Consultation, culminating in a renewed crisis of confidence in 2015. Since then, the situation has stabilized, and growth is estimated to have resumed modestly in 2016. Notwithstanding the substantial progress achieved by Greece, it still faces fundamental challenges: (i) a vulnerable structure of the public finances; (ii) significant tax evasion and an ineffective tax administration; (iii) impaired bank and private sector balance sheets; and (iv) pervasive structural obstacles to investment and growth. Moreover, its public debt remains highly unsustainable, despite generous official relief already provided by its European partners. Addressing these remaining challenges and restoring debt sustainability are essential to creating a vibrant and dynamic private sector capable of generating sustainable and equitable growth and employment.

Read the Report (PDF)

Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 Extended Arrangement-Press Release; Staff Report;and Statement by the Executive Director for Greece

In accordance with Fund policies, this report conducts an ex-post evaluation of a four-year exceptional access extended arrangement under the Extended Fund Facility (EFF) with Greece approved in March 2012. The Fund committed €28 billion under the extended arrangement (SDR 23.8 billion or 2,159 percent of Greece’s quota at the time), following the cancellation of the 2010–12 Stand-By Arrangement (SBA). The program was supported by Greece’s EU partners, who committed €144.7 billion. Significant private sector debt relief (€106 billion) was completed at the outset of the program and large official debt relief was provided as well. The Fund disbursed SDR 10.2 billion. Only five out of 16 program reviews were completed as the program went off track finally in mid-2014. The arrangement was cancelled in January 2016.

Read the Report (PDF)

Greece: Selected Issues

Read the Report (PDF)

Greece Won’t Meet Fiscal Surplus Targets Set By Europe, IMF Says

by Andrew Mayeda & Ian Wishart

Bloomberg
February 7, 2017

Greece is on track to fall short of budget-surplus targets set under a bailout by the nation’s euro-zone creditors, the International Monetary Fund said.

Greece’s primary budget surplus will rise to 1.5 percent over the long run from about 1 percent last year, amid a modest recovery, the IMF said Monday after executive directors met to discuss the fund’s annual assessment of the nation’s economy. Still, the projected surplus falls short of the 3.1 percent forecast by the country’s European creditors.

The fund reiterated its view that Greece’s debt is unsustainable. Most of the executive directors don’t believe the economy needs more fiscal consolidation, the IMF said.

IMF board split over bailout terms for Greece

by Shawn Donnan

Financial Times
February 7, 2017

A stand-off with European authorities over the terms and future of Greece’s bailout has led to a rare public split on the International Monetary Fund’s board, amid growing questions over the fund’s participation.

European institutions and the IMF have for more than a year been at loggerheads over what the fund argues are far too stringent fiscal targets being demanded of Athens by its European creditors and calls by the IMF’s staff for Greece to receive more long-term debt relief.

The battle has raised questions over the IMF’s financial involvement in the current €86bn bailout, with German officials again on Monday saying that without the fund’s participation the rescue programme would end, potentially causing a new funding crisis for the government in Athens.

In an as-yet unpublished report on the Greek economy, the IMF’s staff argue that Greece’s debts are unsustainable and on an “explosive” path to reaching almost three times the country’s annual economic output by 2060.

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Greece’s Response to Its Resurgent Debt Crisis: Prosecute the Statistician

by Marcus Walker

Wall Street Journal
February 6, 2017

Greece is struggling under its austerity regime and new questions are mounting as to whether it can satisfy its bailout terms. Some people in high places know just whom to blame—a statistician in rural Maryland.

Before Greece’s debt crisis, its governments manipulated statistics and masked the size of budget deficits, waste and patronage. The statistician, Andreas Georgiou, moved from the U.S. to become Greece’s first independent head of statistics in 2010. The European Union certified he subsequently fixed the omissions and reported the deficit in full.

On the contrary, Mr. Georgiou’s foes claim, he manipulated the deficit figures as part of a plot to force severe austerity on Greece under the 2010 bailout “Memorandum” imposed by the EU and International Monetary Fund.

Four times in four years, Greek investigators or prosecutors have concluded that Mr. Georgiou merely applied EU accounting rules and committed no crime. Senior politicians and judges have nonetheless kept the accusations alive. He could face five trials, and life imprisonment in one case.

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The IMF Should Get Out of Greece

by Ashoka Mody

Bloomberg
February 3, 2017

The International Monetary Fund's involvement in Greece has been an unmitigated disaster: Time and again, its failure to heed crucial lessons has visited suffering upon the Greek people. When the fund's directors meet on Monday, they should agree to forgive the country's debts and get out.

The IMF should never have gotten into Greece in the first place. As late as March 2010, with concerns about the Greek government's ability to pay its debts roiling markets, Europe's leaders wanted the IMF to stay away. Europeans feared that the fund’s financial assistance to one of their own would signal broader weakness in the currency union. As Jean-Claude Juncker famously put it: “If California had a refinancing problem, the United States wouldn’t go to the IMF.”

Nonetheless, German Chancellor Angela Merkel decided that the IMF’s presence was the signal needed to persuade German citizens that Greece needed urgent financial support and that strict discipline in the use of those funds would be enforced. Merkel’s political priorities coincided with the interests of Managing Director Dominique Strauss Kahn, who was desperate to pull the IMF out of irrelevance. From that moment on, the IMF became Europe's -- mainly Germany’s -- instrument in Greece.

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Greece: Another showdown looming with creditors

The Economist
Intelligence Unit
February 2, 2017

Three things are conspiring to lead Greece towards another conflict with euro zone creditors and another potential debt payments crisis. First, the government is finding it politically almost impossible to push through the reforms required to complete the second review of the bail-out programme. Second, some key euro zone governments facing populist insurgents at the polls are disinclined to make any concessions to Greece. Third, the long-running feud between euro zone institutions and the IMF over how to deal with Greece is coming to a head. In line with our long-standing forecast, we expect the government's political travails to mount in the coming months, and the risk of another early election is rising. We continue to forecast that Greece will leave the euro zone by the end of our medium-term forecast period.

Greece's euro zone creditors are insisting on completion of all reforms under the second programme review and on formal IMF participation in the bail-out programme before they release further funds to Greece. On January 30th Klaus Regling, the head of the European Stability Mechanism (ESM, an inter-governmental assistance fund for countries in the euro zone), the body responsible for loan disbursements to Greece under the third economic adjustment programme, said that Greece must complete the second programme review and the IMF must formally support the programme before the ESM would release further loan tranches. On January 31st the German Ministry of Finance made almost exactly the same points in a public statement.

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Greece three weeks away from 'potentially disastrous' debt problems, says IMF

by Helena Smith

Guardian
January 29, 2016

Greece’s embattled government has three weeks to break the deadlock in increasingly difficult talks with creditors or risk the country’s debt crisis resurfacing with renewed vigour.

Faced with the dilemma of agreeing to additional austerity or calling fresh elections, prime minister Alexis Tsipras was weighing his options at the weekend. Fears of further uncertainty in Europe’s weakest member state mounted as the International Monetary Fund (IMF) predicted that Greece’s debt load could become “explosive” by 2030.

“It is critical that a compromise is found,” said Aristides Hatzis, professor of law and economics at the university of Athens, noting that a slew of elections across Europe would only make Greece’s predicament worse.

“If these negotiations are not wrapped up by 20 February [when eurozone finance ministers next meet] we could be looking at potentially disastrous political turmoil, which would bring back the scenario of Grexit with a vengeance.”

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Turkey threatens to scrap migrant deal in extradition spat with Greece

by Mehul Srivastava & Kerin Hope

Financial Times
January 27, 2017

Turkey has warned Greece it could scrap a deal that helped stem the flow of migrants after a Greek court refused to extradite eight Turkish military personnel.

Mevlut Cavusoglu, Turkey’s foreign minister, made the warning on Friday a day after Greece’s supreme court rejected Ankara’s request for the return of their men it accuses of involvement in last year’s coup attempt.

Mr Cavusoglu said Ankara was keeping its options open in response to the court’s decision in relation to the six army helicopter pilots and two technicians, “including the cancellation of the bilateral readmission agreement”.

Under the accord, Turkey agreed to take back migrants who crossed into Greece and failed to prove their asylum claims. Its cancellation would endanger a more ambitious deal being hammered out between Ankara and the EU that would allow countries in the bloc to return failed asylum seekers.

Scrapping the readmission agreement could encourage more migrants to attempt crossing the Aegean Sea to Greek shores and deal a blow to Athens’ ability to deal with the arrivals.

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France warns ‘window is closing’ for Greek bailout deal

by Jim Brunsden

Financial Times
January 27, 2017

Michel Sapin, France’s finance minister, warned that the “window of opportunity” for a deal on the next stages of Greece’s bailout programme was closing, as a ministerial meeting in Brussels failed to make headway in resolving a split between Athens and the International Monetary Fund.

Mr Sapin, speaking at the end of the regular monthly meeting of eurozone finance ministers, said that the spate of elections in Europe in 2017, starting with those in the Netherlands in March, would soon begin to close out the political space for a deal to be reached. It is widely feared that failure to resolve the issue could knock the bailout programme off course and destabilise Greece.

At Thursday’s meeting, Euclid Tsakalotos, Greece’s finance minister, reaffirmed his rejection of calls from the IMF for Athens to legislate now for the policy measures it would activate after 2018 if the country’s primary budget surplus fell below agreed targets.

Speaking after the meeting, Mr Tsakalotos said it was “not correct to ask a country to legislate two to three years beforehand what it would do in 2019”.

He added: “It is a commitment that goes well beyond the framework of democracy and the ethical values that inspired Europe.”

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Greece’s Top Court Rejects Extradition of Turkish Officers

by Niki Kitsantonis

New York Times
August 26, 2017

Greece cannot extradite eight military officers who fled Turkey after a failed coup in July, the country’s Supreme Court ruled on Thursday. The Turkish government had demanded that the officers be handed over, and it immediately protested the court’s decision.

The court, Greece’s highest, ruled that the eight officers — two majors, four captains and two noncommissioned officers — would face “the curtailment of their fundamental human rights” if sent back to Turkey, and it called for their immediate release. The decision is irreversible.

The officers fled to northern Greece in a Turkish Army helicopter on July 15, saying they feared for their lives, and there was pressure on the court to deal with two seemingly irreconcilable demands: ensuring that the officers’ human rights were respected without angering a sometimes prickly neighbor.

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Greek court rejects Turkish request to return airmen

by Kerin Hope

Financial Times
January 26, 2017

Turkey has protested after Greece’s supreme court rejected its request to extradite eight military personnel who sought political asylum after last year’s coup attempt.

The foreign ministry in Ankara accused Greece of protecting instigators of the coup and harbouring far-left and Kurdish groups that had carried out attacks in Turkey. “Once again Greece, an ally and a neighbour, has failed to fulfil the basics in the fight against terrorism,” the ministry said.

In a written decision released on Thursday, the supreme court ruled against extradition of the six army pilots and two technicians by a majority of 14 to one, saying the men faced “possible violations of human rights” if they were returned to Turkey.

The eight were arrested on July 16, the day after the coup, after landing a military helicopter at Alexandroupolis airport in northern Greece. They faced charges of involvement in a plot to assassinate President Recep Tayyip Erdogan and overthrow the government, according to the extradition documents.

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Greece’s Tsipras Insists on ‘Not One Euro More’ of Austerity

by Marcus Bensasson

Bloomberg
January 25, 2017

Greek Prime Minister Alexis Tsipras dug in against creditor demands for more pension cuts and tax increases before a meeting of euro-area finance ministers to unblock the country’s bailout review.

“There is no way we are going to legislate even one euro more than what was agreed in the bailout,” Tsipras said in an interview with Efimerida ton Syntakton, to mark the two-year anniversary since he was elected on an anti-austerity platform. “The demand to legislate more measures, and contingent ones, no less, is alien not just to the Greek Constitution but to democratic norms.”

Euro-area finance ministers will discuss Greece when they meet in Brussels on Thursday, with Greece and officials representing the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund locked in a stand-off over how to complete the country’s second bailout review, now a year behind schedule. The IMF, in particular, views the projections shared by Greece and the European creditors that the country can reach a primary budget surplus of 3.5 percent of gross domestic product by 2018 as too optimistic.

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Greek court to decide on fate of eight Turkish soldiers

by Helena Smith

Guardian
January 22, 2017

Greece’s supreme court will decide on Monday on the fate of eight Turkish military officers who fled their country a day after last year’s attempted coup in a case that has triggered outrage among intellectuals and is viewed as a test for European democratic values.

The hotly awaited judgment, six months after the doomed putsch against Turkey’s president, Recep Tayyip Erdoğan, has put considerable pressure on already strained relations between Athens and Ankara. “Turkey feels very strongly about this,” a senior official said. “Everyone is watching very closely.”

With the refugee crisis far from over and talks to reunify Cyprus at a critical stage, the ruling could send ripples across the turbulent Aegean Sea that divides the two longstanding Nato rivals. Erdoğan has made clear that he wants the eight men extradited in order to face charges of trying to overthrow the government.

He has publicly said that the Greek prime minister, Alexis Tsipras, has assured him the officers will be sent back. Turkey’s foreign minister, Mevlüt Çavuşoğlu, claims he extracted a similar promise from Nikos Kotzias, his Greek counterpart, during a telephone conversation on 16 July, the day the officers flew their Black Hawk helicopter across the border.

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Fate of eight Turkish airmen is an acid test for democracy

by Nick Cohen

Observer
January 22, 2017

Hard questions for democracies have piled up with a speed we have yet to take in. After the cold war, westerners asked how to stand up to autocrats. Should we intervene to stop genocide in Bosnia? Or demand sanctions and boycotts to protect the rights of Tibetans? The rise of communist China, Putin’s Russia and Erdoğan’s Turkey changed the terms of debate. The question was no longer should we intervene, but could we intervene against powers more than able to resist pressure?

Now that the Trump administration has slouched towards Washington to be born and strongmen have muscled their way into the chancelleries of eastern Europe, the question is more basic: how are supposed democracies different from actual dictatorships?

Greece, the birthplace of democracy, is rarely included in the list of countries that have sunk into corrupt and mendacious authoritarianism. The fact that Syriza is held to be a leftwing rather than a rightwing populist regime is thought to be a distinction of supreme importance by the kind of people who think Paul Mason is an intellectual. Yet the arrival in power of “the coalition of the radical left” did not stop the corruption scandals in Greek politics. Nor did it usher in a new age of freedom.

Instead, Syriza has shown that concepts of “left” and “right” cannot explain the brute realities of 21st-century power. They are almost an irrelevance now. If Donald Trump is right wing, for instance, why do free-market conservatives and national security Republicans fear him so? If Syriza is left wing, why is it in alliance with the ultra-nationalists and religious obscurantists of the Independent Greeks party?

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