IMF Official: Austerity Policies Hurting Greece
Official's statements a "departure from the IMF script"
In an interview with the Greek newspaper Kathimerini, International Monetary Fund (IMF) official Poul Thomsen admits that the austerity-emphasized strategy for Greece hasn't worked.
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The Guardian reports today:
[Thomsen, the] leading architect of the austerity program in Greece – one of the harshest ever seen in Europe – has admitted that its emphasis on fiscal consolidation has failed to work, and said economic recovery will only come if the crisis-hit country changes tack and focuses on structural reforms.
Poul Thomsen, a senior International Monetary Fund official who oversees the organization's mission in Greece, also insists that, contrary to popular belief, Athens has achieved a lot since the eruption of the debt crisis in December 2009. [...]
In an extraordinary departure from the script the IMF has followed to date, the Danish official, who is also in charge of the IMF program in place in Portugal, acknowledged there was a "limit" to what society could endure.
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In the interview, Thomsen notes that the austerity measures have lead to recession and that there are limitations on social and political support:
Aren’t you concerned that the policies that you are recommending are causing a deep recession?
Yes I am. Recession, decline in wages and rising unemployment are unavoidable for a country that has to tackle a dual problem of excessive fiscal deficits and lack of competitiveness—that has to undertake painful fiscal consolidation and sometimes equally painful reforms at the same time. This is why the IMF has cautioned against an excessive pace of fiscal consolidation. While Greece certainly will have to continue to reduce its fiscal deficits, we would want to ensure—considering that social tolerance and political support have their limitations—that we strike the right balance between fiscal consolidation and reforms. We have argued to go a little slower as far as fiscal consolidation is concerned and move faster—much faster—with the reforms needed to modernize the economy. I think that you will see this reflected in the new program.
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In an extraordinary departure from the script the IMF has followed to date, (Thomsen) acknowledged there was a "limit" to what society could endure.On Firedoglake David Dayen writes about the reforms:
Now, these “reforms” are far from the correct remedy (a real tax collection system in Greece, particularly for the wealthy, would help). In fact, many of them are simply austerity policies tarted up as reforms. But hearing this IMF official pull back on the crushing austerity a bit at least reflects the reality of the situation. The fact is that years of austerity have done absolutely nothing to improve the economic situation in the peripheral countries. Their unemployment rates are astoundingly high and that will surely seep into their trading partners throughout the rest of the Eurozone before long.
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The Guardian continues:
Athens's first financial lifeline – a €110bn bailout granted in May 2010 – relied heavily on belt-tightening measures that included hefty tax rises and across-the-board wage and pension cuts. Although the policies helped bring down Greece's primary deficit from €24.7bn in 2009 to just over €5bn in 2011, they have proved to be explosive, prompting unprecedented social unrest and a recession of a size not seen since the second world war.
The Greek economy is projected to contract by over 5% this year; GDP has fallen almost 16% over the past three years. The new bailout program will concentrate more on spending cuts, with the finance ministry announcing that €4.4bn will be saved by reining in expenditure on welfare and defense. Loss-making state utilities will also be shut.
But on Wednesday, experts said the policy switch would only work if more rescue funds were pumped into the program, which currently stands at €130bn. A deal to restructure Greece's €350bn debt – due to be announced by the end of the week – would also be vital, they said.
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