The end of the EU aid programme to Greece on 30 June, and the organisation of a Greek referendum on 5 July, raise the prospect of ending the “IMF – Europe” era, writes Yves Bertoncini
Yves Bertoncini is director of the Jacques Delors Institute.
It is necessary for Greece to exit the “IMF-Europe” era on top, for three reasons:
1. To adopt national and European measures that enable Greece to return to the financial markets.
Leaving the IMF’s European era first and foremost involves countries financing themselves on markets with acceptable rates. Ireland and Portugal have already succeeded in this, and Greece and Cyprus are hoping to follow their lead.
The EU was not designed to act like the IMF by financing rescue packages for the four countries in the programme, after the modification of its treaties. This was a temporary move, requesting in return that these counties make painful adjustments with a view to recovering their financial solvency and strengthening their economic competitiveness, social cohesion and state efficiency.
Regardless of the outcome of the referendum, the Greeks cannot escape the financial reality requiring them to record a moderate primary budgetary surplus: firstly to convince their current public creditors that their assistance, which is to continue, is not poured into a “Basin of the Danaides”, but primarily to incite private stakeholders to renew their long-term financing of the state and companies in their country.
All these efforts will not bring immediate results, particularly if they are restricted to structural adjustments. It is therefore up to the EU to bolster them with a support strategy for Greek growth that includes massive public investments. Structural and cohesion funds, loans from the EIB, contributions from the “Juncker Plan”, etc.: these are the tools that are available to an “EU – World Bank” programme acting in the long term, while the “IMF – Europe” programme could only ever be temporary.
2. To cease relations based on accounting conditionality and revive political cooperation.
Leaving the “IMF – Europe” era must also be an opportunity to resume relations between EU member states based on political cooperation rather than on accounting conditions.
Even if some economists or ministers seem to aspire to this on occasion, the intrusive conditions put into place with regard to the four “countries under programme” will not become the norm: the sovereignty of EU member states and the legitimacy of the reforms they adopt are at stake. Such conditionality must be practiced with caution, under the direct supervision of the heads of state and of government, who cannot leave the euro’s future in the hands of finance ministers or central bankers, or even worse, their administrations.
The issue is not that these stakeholders have an accounting vision and economic zeal specific to their functions, but that higher authorities are not sufficiently involved in the talks and decisions that have a resolutely political dimension. Continued aid for Greece and/or its possible exit from the euro area are, much more than a case of moral hazard, difficult decisions with geo-political risks: the EU’s leaders must act accordingly, with a clear vision of the situation!
In contrast, the referendum held by Alexis Tsipras seems to be part of a highly political tactical approach, even though the conditions of its organisation are problematic in terms of deadlines and the question asked, as is the underlying desire for confrontation. This appeal to the people cannot, under any circumstances, conceal a democratic fact: with all due respect to Pericles’ successors, the heads of state or government of the other euro area countries also have an indisputable legitimacy, speaking for their people who are as deserving of respect as the Greeks, and with whom an agreement must be found.
As it happens, the majority of all EU peoples wish to leave the “IMF – Europe” era: Those who, like the Greeks, have had to endure very painful social and budgetary adjustments, but also those who have had to provide them financial assistance, while wondering if one day they would be repaid. It is up to the heads of state and of government to act upon such democratic convergence by adopting the compromise that will allow for a recovery from the current crisis as well as an exit from the “IMF – Europe” era.
3. To clear the accounts of the “IMF – Europe” era on the basis of shared responsibilities.
If four EU member states requested aid from the “IMF – Europe”, this is mainly due to the bad decisions made by their leaders that left them in a state of virtual bankruptcy, for various reasons (the wayward banking sector, the property bubble, a defaulting state, etc.).
For Greece, it should be easy for Alexis Tsipras and his counterparts to agree to stress the overwhelming responsibility of the people and parties who have governed the country over the last forty years. This implies that the Greek citizens and authorities are more accepting of the strictly national dimension of their tragedy (including corruption, tax evasion and nepotism), without reducing it solely to external causes.
The responsibilities of private creditors, who financed Greece poorly between 2002 and 2010, have already been identified and undertaken. They have partly paid the price, as in 2012 they had to give up on half of their debts (to the tune of slightly more than €100 billion).
The responsibilities of the EU authorities can be addressed with regard to Greece over the last forty years, as they long tolerated shortcomings of which they were aware. They can be highlighted with regard to the establishment of a monetary system that creates a “de facto solidarity”, lacking in concrete mechanisms to allow the costs of this solidarity to be shared between national authorities. But one major area of responsibility is the management of the Greek aid programme over the last few years, as it was based on assumptions and targets that were partly wrong, as the IMF has acknowledged.
It is therefore logical that Greece’s public creditors should also accept their responsibilities by “paying the price” for their mistakes. This could be achieved firstly by granting Greece a new aid plan for several dozen billion euros in support of its economic and social recovery efforts. Secondly by massively supporting public investment in Greece, and thereby renewing domestic growth to alleviate the debt/GDP ratio. And finally, by considering a reduction to the burden of Greek debt and the debts of other countries under the programme, if the reform commitments are to be upheld.