Every few years the International Monetary Fund publishes a mea culpa, examining its failures to implement reforms across the globe. Each of the IMF’s “ex post evaluations” is the equivalent of the parade of apologies that Ireland’s bankers and regulators treated us to during our own banking inquiry. Perhaps the apologies were well meant, but as they carried no consequences for those apologising, they sort of fall flat.
Remember why countries call the IMF in the first place. They have had a fiscal or monetary crisis, lost access to private sovereign debt markets, are in a serious bind, and are in need of injections of cash, confidence, advice, and political cover for the implementation of very unpopular structural reforms.
The last IMF mea culpa, written in 2013, looked at how the IMF treated Greece in 2010, during its first bailout. Greece is now on its third or fourth bailout, depending on how you count. Among the “notable failures” of the IMF, “market confidence was not restored, the banking system lost 30 percent of its deposits, and the economy encountered a much- deeper-than-expected recession with exceptionally high unemployment”.
Those are some notable failures, right there.
It has been no secret that the IMF has not been happy with the type of austerity measures imposed on countries like Ireland, Greece, and Portugal. As one component of the Troika, the IMF was always going to be outvoted. Things are changing, however. The ECB has steadily reduced the power of the European Commission and its analysis, thus increasing the pressure on (and exposure of) the IMF to criticism that it will not be able to counter in the longer term.
The website Wikileaks has published the transcript of an IMF phone call from two weeks ago between the IMF’s chief negotiator, Poul Thomsen, and Delia Velculescu, the head of the IMF’s mission to Greece.
The IMF’s unhappy position on Greece has been so well leaked by themselves as it unfolded and in official blogs that the Wikileaks leak contains very little actual news.
There aren’t too many revelations in the actual transcript, except perhaps the depth of concern among the IMF’s officials that the IMF itself should leave the Troika and allow the Europeans to mind themselves and their own economies in the future.
The obvious worry the IMF officials have is that another ‘mea culpa’ will be required, should Greece not get the debt relief and sensible macro economic targets the IMF has been losing the argument for over the last few years. Both Thomsen and Velculescu look past the Brexit vote in June to a moment or ‘event’ in the summer, or perhaps in April, which might actually get Germany and its allies in Europe to agree to more sensible targets for spending decreases and tax increases in Greece, as well as a better treatment of its debt.
So what do we really have here? We have two senior IMF officials deeply unhappy with how things are unfolding in Greece, foreseeing a moment when Greece again runs out of money, and on their watch, in which they themselves are unable either to convince Europe’s creditor countries to see sense or their own board, who make the substantive decisions, to fight harder for a sharp withdrawal from the Troika.
Thomsen and Velculescu are the meat in a future “mea culpa” sandwich, and they know it. That is what we’re reading in this transcript. It is fascinating to see how even they personify the creditor countries into just Angela Merkel. Of course Merkel is the most powerful person in Europe, perhaps the world, given how weak the US President is at the moment, but she is not the only person who needs to be convinced, and not by a long shot.
Merkel’s support is weakening at home as the migrant crisis deepens and ordinary Germans adjust to the reality of, in effect, a million new citizens of their country joining in under one year. Yes, that’s only one-eightieth of the population, and they will integrate over time, but what matters is Merkel’s power to convince her allies in Finland, the Netherlands and Austria to follow her chosen course of action. It’s not at all clear that this can happen as a future Greek funding crisis evolves.
The transcript shows that politics and power still trump economics and analysis, even among technocrats. It also shows us that the IMF’s key officials are on the side of the Greeks as any crisis unfolds. That might be cold comfort for the Greek people, given how ineffectual they’ve been to date, but it’s better than nothing.