Rehn tries to douse Greek hopes of program change due to fiscal multipliers

European Economic and Monetary Affairs Commissioner Olli Rehn intervened on Wednesday in the debate over the calculations on which the Greek fiscal consolidation program was based and attempted to douse expectations in Athens that there is room to renegotiate part of the deal.

A day after European Union finance ministers met in Brussels, Rehn took the unusual step of sending a letter to all the ECOFIN officials regarding, among other things, the so-called fiscal multipliers for Greece’s program.

The letter was also copied to European Central Bank President Mario Draghi, European Stability Mechanism chief Klaus Regling and the IMF, which triggered the debate by admitting that it underestimated the impact Greece’s adjustment program would have on its economic output by as much as three times.

Rehn’s comments suggest he believes that any hope the Greek government has of changing the program should be nipped in the bud. “Recent studies on fiscal multipliers are of particularly limited use when it comes to the case of Greece,” said Rehn, who referred to an article by IMF chief economist Olivier Blanchard in Sunday’s Kathimerini that said it was a “fundamental misreading of historical record” to suggest the Greek program had veered off track because it was badly designed.

Rehn suggested other factors affected the Greek program, such as “persistent uncertainty and problems with implementation” at the start of the program that blocked the “confidence effects” which would have lessened the impact of austerity. Rehn also suggested the IMF’s analysis was not broad enough and that several other factors came into play, such as a general economic downturn in the eurozone.

Rehn stressed that December’s agreement to release more funding had “removed the uncertainty” surrounding a Greek euro exit and that Athens’s focus should be on implementing the program, which had already been adjusted to take into account Greece’s worsening economic condition, which led to Athens being given two more years until 2016 to meet its targets.

The timing of Rehn’s intervention suggests that he was unhappy with Greek Finance Minister Yannis Stournaras bringing up the issue at the ECOFIN and with the IMF for raising an issue that he deems irrelevant to the immediate challenges facing Greece and the eurozone.

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