By Tom Ellis
Greece’s foreign creditors will rubber-stamp the country’s bailout deal based on the sustainability of its debt, as well as the securing of further funding, which will effectively come in the form of an extension to the fiscal adjustment program or a new haircut, Thanos Catsambas, the country’s representative to the International Monetary Fund, told Kathimerini.
The Greek representative to the IMF -- which together with the European Commission and the European Central Bank comprises the so-called troika -- stresses, however, that any additional funding for the country would come exclusively from its European partners, as the IMF has exhausted its lending capacity for Athens.
Catsambas, who is one of the IMF’s alternative executive directors, argues that Greece is currently enjoying a higher level of “good will” from its partners, stressing the importance of recent comments by the IMF’s Deputy Managing Director David Lipton, in which he said that Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras “are dedicated to finding an appropriate path for adjustment.”
What are the goals and the timeline set by the troika’s inspectors in Athens over the next few weeks?
The troika will try to assess the progress of the [fiscal adjustment] program according to the implementation of measures as well as in macroeconomic terms. Based on this data, it will negotiate with the government a modified memorandum aimed at economic growth in as short a time as possible, under two indisputable conditions: sustainability of the external debt and finding additional funds. The latter is also connected to a possible extension of the program and the targets of the adjustment.
What role does the head of the IMF’s mission to Greece, Poul Thomsen, play and what are his expectations of the Greek government?
As chief of the IMF mission, Thomsen is responsible for coordinating the technical team that is carrying out the program and for negotiations with the Greek government in regard to modifications to the memorandum. The objective is to draw up a “progress report” on commitments made by the Greek government to measures that should have been adopted by the end of May and by the end of August. This package includes the well-known commitments for reductions in spending amounting to 11.6 billion euros, which form the core of the fiscal measures for the 2013-14 period. The negotiations are focused on the level at which these commitments have been met and on reviewing the targets and commitments of the Greek government, if this is deemed necessary.
When is the IMF’s Executive Committee scheduled to meet on Greece and when will the disbursement of the next tranche of funding be discussed?
Based on the Fund’s internal deadlines, the annual summit with the World Bank on October 9-14 in Tokyo and certain other necessary actions, my estimate would be that the discussion cannot take place before the last week of October. The IMF’s internal procedures are pretty complicated. The first draft for the final report that will be presented for approval to the Executive Committee will be drawn up by the IMF’s European Department, which has the overall supervision of the Greek program. The final draft then includes the participation of experts from at least another three departments who carry out detailed checks of the legal, fiscal and comparative aspects of the program with other countries.
Haircut or extension?
Does the IMF foresee additional financing in the form of Official Sector Involvement [or OSI, a term which refers to a restructuring of the debts held by Greece’s international creditors] or an extension to the fiscal adjustment program as more likely?
Both forms are complementary, though not mutually exclusive. An extension to the program will mean more funding as the adjustment will become milder and, as a result, the public sector’s borrowing requirements will be greater. Covering the borrowing requirements could take two forms: either additional funding (with more favorable terms) or by a restructuring of the debt held by the official sector.
However, any additional funding in any form will come exclusively from Europe. The IMF has exhausted its possibilities to extend the loan beyond the amount approved last March. Therefore, and even if the IMF considers OSI to be the most advisable solution, the final decision rests with Greece’s European partners and will be determined by the political and institutional restrictions faced by governments and the ECB.
What is the general feeling about Greece at the IMF, and how were Greek Prime Minister Antonis Samaras’s meetings with French President Francois Hollande, German Chancellor Angela Merkel and Eurogroup Chairman Jean-Claude Juncker viewed?
Let me start with Juncker. In a recent telephone exchange between the prime minister and [IMF Managing Director Christine] Lagarde, she asked Samaras to share his impressions from his meetings with the European officials. The overall impression of the prime minister and the personal assessment of the managing director is that right now Greece is enjoying the highest level of good will from its partners that it has had since the long pre-election period.
Personally I give greater weight to the recent comments by David Lipton, who said that the prime minister and finance minister “are dedicated to finding an appropriate path for adjustment, getting things back on track, and we’re trying to help.” Such words from a reserved and rational person are the best that the government could expect under the circumstances.
Is the general feeling that Greece will get the next installment of funding and also remain in the eurozone?
Right now Greece has a financial team of international caliber working like a well-oiled machine and working night and day to make up for ground lost during the extended electoral process. The prime minister has handpicked his closest associates on their merit and he himself has a reputation for being a hands-on manager who does not give in to political expediency. Therefore, I have faith in the former and hope for the latter.
Is it true that in the spring of 2010 the IMF estimated that the program was not working and that a restructuring was necessary, as your predecessor Panayiotis Roumeliotis has asserted?
I am not in a position to answer that question given that I was not acting in an official capacity in the spring of 2010 and had no participation in behind-the-scenes negotiations. I do not know what Roumeliotis was referring to exactly, but I can say this: The program has proceeded as planned and the only “failure” has been that the public sector still has significant borrowing needs, despite the unprecedented haircut on privately held Greek debt. In other words, the adjustment has not yet been as successful as one would have expected.
Recession & unemployment
Yet within the context of the fiscal adjustment, for the past two years Greece has been experiencing an unprecedented recession and a rapid rise in unemployment.
Without structural reforms, the public sector’s borrowing needs can only be contained by a greater recession. With structural reforms and an increase in overall demand, the adjustment would have been achieved with far smaller negative consequences to the real economy. I must remind you, though, that a few months ago, Gikas Hardouvelis, the economic adviser to then-Prime Minister Lucas Papademos, had said that over the course of 2011 just 22 percent of the measures in the first memorandum had been implemented. It defies all reason to argue that the program failed when the government, consciously or not, implemented just one-fifth of the agreed measures.
Was a recession of this length and magnitude expected?
Any reliable macroeconomist with experience in fiscal adjustment programs would have expected Greece to go through a period of recession and to experience a drop in living standards that would last for several years. The economic term “internal devaluation” is a euphemism for the anticipated decline in living standards.
I had drawn attention to the recession in February 2011, when I also made three observations: first, that the Greeks’ standard of living would drop significantly and systematically for three to five years; second, that if the authorities did not succeed in dealing with the persistent problem of tax evasion, the game would be lost; and third, Greece’s new growth model should be based on the service sector, with a small participation from the primary sector.