By Tom Ellis
The managing director of the International Monetary Fund, Christine Lagarde, has been pleasantly surprised by the stance of Greek Prime Minister Antonis Samaras. In an interview with Kathimerini, the head of the Washington-based Fund also describes the benefits of having a coalition of three parties in Greece at the moment, saying that it can bring a much broader support base than a single governing party could hope to ensure with a slim majority in Parliament.
Lagarde hails Europe’s decision to agree to the IMF’s demands for a two-year extension to Greece’s fiscal adjustment period and suggests that there should be a further write-down of Greek debt on the condition that Athens honors the commitments it has made with it creditors.
The IMF chief says that the areas the Greek government needs to focus on right now -- following the disbursement by the IMF, the European Commission and the European Central Bank of two tranches of aid funding for Greece -- are improving tax collection and stepping up efforts to clamp down on tax evasion, implementing the structural reforms outlined in the bailout deal, and privatizations.
Lagarde concedes that the Fund underestimated the effect that austerity measures would have on economic growth in the case of Greece, though she insists that it is still too soon to rewrite history.
The former French finance minister confirms that in 2010 she submitted a list of Greeks with deposits at the Geneva branch of HSBC to her Greek counterpart Giorgos Papaconstantinou upon his request.
What is your assessment so far of Prime Minister Antonis Samaras and his government?
We have a good working relationship with both the prime minister and the minister of finance. They are our two key counterparts. I felt sorry for the prime minister because when he took office he had an eye problem and while he was very keen on getting started and meeting with us, with me actually, he couldn’t travel. But right after that, when his condition improved, he was really determined. So we’ve had a good relationship and it’s been very honest and straightforward.
Since becoming prime minister he has surprised many people.
Yes. He has surprised me too.
Does the participation of three parties in the coalition government help or hinder the efforts of the prime minister, given that on the one hand you have different ideologies but on the other you have 48 percent of the votes?
Yes, I think it helps. A coalition always requires an additional effort. When you have your own party and you don’t have to consult with anybody, you can reach decisions quicker. In his case, having a coalition means more consulting, spending more time, compromising. When you have different operators and you need them all on board, it is always tit-for-tat and give-and-take, but I think, at the end of the day, when it comes to the ownership of the program and accountability to the people, it is far more important to have a large coalition than to have a narrow majority.
How do you respond to Greek opposition leader Alexis Tsipras’s criticism of the fiscal adjustment program?
I would say to him: What is the alternative? We have considered all the options, all the possibilities. Within the euro area, with the euro as a currency, we believe that this is the most efficient and the best that can be done to restore the situation.
Are you still in favor of a bigger write-down of Greek debt held by the official sector? If so, how soon do you hope this will happen?
You know, the European partners recognized that Greece’s debt was not sustainable in the long term. And in my view, they have crossed the Rubicon in three different ways: One, they have lowered the interest rate massively; two, they have extended the maturity of their bilateral loans to the country; and three, they have committed to provide additional support, additional long-term support, provided that Greece performs and delivers on its commitment.
You place emphasis on combating tax evasion. What is your response to those proposing an amnesty to facilitate the return of capital and the collection of taxes?
First of all, I think that tax collection, the reform of the tax collection mechanism, significantly improved efficiency and better governance are top priorities. Second, I think a tax amnesty would be a mistake. I was confronted with the issue when I was finance minister. If you give taxpayers the impression that there will be an amnesty or amnesties, what’s the incentive to pay tax?
What if it’s just once?
But it is never once and for all. And if you look at some countries that have actually enforced tax amnesties, they do it over and over and over. My sense is that it is a lot better to improve the efficiency of tax collection, to reform the tax administration, to make sure that the governance is respected.
I had asked you in Tokyo, together with German Finance Minister Wolfgang Schaeuble, which prescription Greece should follow: yours or his? You both jokingly said, “We agree.”
We do agree.
Do you? The audience at that forum laughed.
Well, you know, we’ve been companions and partners on this particular matter. We have not always had the same assessment, the same agenda. So at the end of the day, what I’m pleased about is that the length of the program for Greece has been extended, so the fiscal consolidation efforts can be delivered over a longer period of time.
Second, I’m pleased that that the Rubicon could be crossed in these three different ways. And the condition put down by the Europeans seems perfectly legitimate. In other words, we will help you, we will go out of our way to help you and make sure that you stay within the zone, provided that you deliver. And provided that you deliver is obviously key, which makes me say that Greece holds its future in its hands. It can rule its destiny because it is upon it to actually deliver on the program and succeed.
What do you expect from Greece?
You know what would really make me happy? If Greece could actually succeed and go through with the program, deliver on the program, and get back on its feet. That would make me really happy.
I have to ask you about the so-called Lagarde List. When you handed over the list, you wanted it to be utilized. Was it utilized? Are you satisfied with how it was handled by Athens?
You know, it was not for me to assess or appreciate that. My duty, my job was to help with the tax collection efforts. And Greece’s minister of finance asked me if I could share that list, which was done. Beyond that, it was no longer my call and it was up to the Greek authorities to do what they had to do.
He was the one who asked you? He wanted to work the issue? You weren’t the one that mentioned it?
That’s clearly how it came across, yes.
Was the IMF mistaken in the projections it made for Greece and in the prescription it provided?
It is very difficult to rewrite history. At the time when the program was designed, the fiscal multiplier that was used was the same used by others, like the OECD [Organization for European Cooperation and Development]. We, in good conscience, thought it was correct. What clearly had been underestimated was the impact that the external circumstances would have on this very specific relationship between fiscal austerity and growth. The fact that there was very little liquidity, as well as the fact that all other countries around Greece and those with a trading or investing relationship with Greece would themselves be under stress and would struggle. All of that clearly had an impact. That was underestimated at the time because it didn’t exist. It occurred in the process.
At great social cost, I would add.
At the beginning, probably yes. That’s why the projections were changed.
So the original design of the program was wrong?
It is too early to judge. The time will come when the program is over, when Greece is back on its feet, and when it has recovered, to actually look back and decide what was done right, and what was done wrong. I think for the moment we should all dedicate our energy to and focus on what remains to be done because it would be a pity to have done so much, for the Greek people to have taken on so many sacrifices, to not go to the end of the road.
Can you tell us with certainty that no new measures will be necessary?
If the structural reforms are conducted and if there is proper transmission of the salary cost reduction into the prices of goods, no additional measures will be needed, beyond what is in the program. If, however, the structural reforms were not to take place, if the closed professions were to maintain their privileges, if the multiple licenses, bureaucratic hurdles, and impediments to growth were to stay, if tax administration isn’t improved, then we would face another situation where the fiscal deficit would need to be reduced and, therefore, more cuts would be needed. It is not what we want because we recognize that so much has been done in that particular area, with Greece now returning closer to the European average when it comes to those pensions and labor costs.