IMF Invited To Greece Bailout Talks
By MENELAOS HADJICOSTIS & NICHOLAS PAPHITIS
THE ASSOCIATED PRESS
Friday, July 24, 2015 at 11:34 p.m.
ATHENS, Greece
Greece on Friday invited the International Monetary Fund to participate in its negotiations with European creditors over a vital third bailout — talks that are expected to start next week after a few days' delay and must conclude before Greece faces another big repayment Aug. 20.
Negotiators are now expected to arrive in Athens over the weekend with talks probably starting Monday, Greek officials said.
In a statement Friday evening, the IMF confirmed it had received Greece's request for a new IMF loan and said it would work to arrange talks with Greece and its European creditors.
Athens is looking to secure yet another bailout — the third since its finances imploded in 2009 — worth 85 billion euros over three years. Without the money, the country faces imminent bankruptcy and a probable exit from the shared euro currency.
The letter to the IMF, signed by Finance Minister Euclid Tsakalotos, formally requests a new bailout from the fund. That is in accordance with the preliminary third bailout agreement Greece struck with its European partners on July 12, which called for IMF financing and monitoring for Greece from March 2016 — when current IMF financing ends.
The letter said Athens believes it will take "several quarters" before the Greek economy faces up to its challenges "and returns to a vigorous and sustainable path to growth with fairness and social inclusion."
"We look forward to continued cooperation with the Fund," it added.
Greek government spokeswoman Olga Gerovasili said the final third bailout agreement will be brought to Greece's parliament for approval on Aug. 18.
"Clearly, the negotiations will be constant until then," she said Friday.
Greece has a debt repayment of around 3.2 billion euros to the European Central Bank on Aug. 20.
Greece's five-year financial crisis took a dramatic turn for the worse this summer, after talks between its radical left-led government elected in January and the country's creditors nearly collapsed amid sharp disagreements over the reforms required in return for the rescue loans. The new bailout was only possible after Prime Minister Alexis Tsipras made a sharp U-turn from years of vehemently opposing further cutbacks.
Since its first bailout in 2010, Greece's economy has shrunk by a quarter, while unemployment has rocketed to record peacetime highs and incomes have shrunk an average of 40 percent. Much of the pain has been attributed to the income cuts and tax hikes demanded by creditors.
It's unclear to what extent IMF participation complicates the latest bailout talks. The fund has been critical of many of the demands insisted upon by Greece's European creditors but it also says Greece needs deep, meaningful debt relief — something that Germany and other European nations are dead set against.
Gerovasili said the IMF position on Greece's crippling debt load — the highest in the 19-country eurozone — "is clearly something we agree with."
But she added the fund "is tougher in negotiations, with harsher terms, and is not very agreeable to us as a negotiator."
Gerovasili dismissed reports that security concerns delayed the talks Friday, blaming "technical issues" instead.
"Greece is a safe country," Gerovasili said. "Both sides are trying to expedite the start of talks."
The final hurdle Greece had to clear before talks could restart came early Thursday when Greek lawmakers approved creditor-demanded judicial and banking reforms.
Why Greece Should Leave the Eurozone
By HANS-WERNER SINN
JULY 24, 2015
MUNICH — THERE are not many issues on which I agree with my colleagues Paul Krugman and Joseph E. Stiglitz and the former Greek finance minister Yanis Varoufakis. But one of them is the view that an exit from the eurozone would be advisable for Greece.
Unfortunately for Greece and for Europe, we may now have to live with a third bailout program, in which Greece will receive a rescue package worth 86 billion euros (about $94 billion) in return for additional austerity measures. The new agreement will most likely drag Greece through three more years of a long-lasting, costly experiment that has so far failed miserably.
As of June, the eurozone countries, the European Central Bank and the International Monetary Fund had provided the Greek government and banking system with 344 billion euros ($375 billion) worth of public credit — nearly double Greece’s annual economic output, or about 31,000 euros ($33,000) for each Greek citizen.
One-third of the public credit that has flowed to Greece since 2008 has been used to bail out private creditors; one-third went to finance the Greek current account deficit (the excess of imports and net interest payments to foreigners over exports and transfer payments from abroad); and one-third vaporized by financing the capital flight of Greeks.
The public credit has delayed a Greek bankruptcy, but it has failed to revitalize the Greek economy. To compete, Greece needs a strong devaluation — a relative decline of its price level. Trying to lower prices and wages in absolute terms (for example, by slashing wages) would be very difficult, as it would bankrupt many debtors and tenants.
It would arguably be better to inflate prices in the rest of the eurozone, as the European Central Bank is trying to do through quantitative easing: purchasing large quantities of bonds to drive down the value of the euro. If the rest of the eurozone posts inflation rates of slightly less than 2 percent, as the E.C.B. hopes, Greece would be competitive after a decade or so, provided that its price level stays put. However, even such a mild form of an “internal devaluation” would be very arduous, as it would require precisely the kind of fiscal restraint that the Greeks rejected in the referendum.
What about the solution favored by leftists: more money for Greece? No doubt, enormous government spending would bring about a Keynesian stimulus and generate some modest internal growth. However, apart from the fact that this money would have to come from other countries’ taxpayers, this would be counterproductive, as it would prevent the necessary devaluation of an overpriced economy and keep wages and prices above the competitive level.
Take the case of Ireland. Like Greece, Ireland became too expensive, as interest rates fell sharply during the introduction of the euro. When the bubble burst, in late 2006, no fiscal rescue was available.
The Irish tightened their belts and underwent a drastic internal devaluation by cutting wages, which in turn led to lower prices for Irish goods both in absolute and relative terms. This made the Irish economy competitive again.
Granted, Ireland also received fiscal aid. But that came much later, toward the end of 2010, and when it came, the internal devaluation stopped almost immediately. Twelve of the 13 percentage points of the Irish decline in relative product prices came before that date. Of the eurozone countries hardest hit by the financial crisis, Ireland will be the only one this year to see its G.D.P. surpass its precrisis level.
Greece’s devaluation started five years after Ireland’s, and by now has reached 9 percent. Analysis by Goldman Sachs researchers suggests that product prices would have to decline by another 13 to 22 percentage points for Greece to be competitive. (Wages in neighboring Turkey, Bulgaria and Romania, the latter two being European Union members, are only one-third to one-fifth Greece’s level.)
The better alternative is a Grexit accompanied by debt relief, humanitarian aid for the purchase of essential imports and an option for eventual return to the euro. Greece could reintroduce the drachma as the only legal tender. All existing prices, wages, contracts and balance sheets, including internal and external debt, could be converted one-to-one into drachmas, which would immediately decline in value.
The devaluation would induce Greeks to buy domestic rather than imported products. Tourism would get a boost, and capital flight would be reversed. Rich Greeks would return with their money, buy real estate and renovate it, fueling a construction boom. As the trade deficit gradually turned into a surplus, creditors would get some of their money back.
Greece would have the option to return to the eurozone, at a new exchange rate, after carrying out institutional reforms — such as public recording of land purchases, functioning tax collection, accurate statistical reporting — and meeting the normal conditions for eurozone membership. It could take five or 10 years.
It is true that Grexit would make it clear that membership in the eurozone is not irrevocable and could expose member countries to speculative attacks. But this is not very likely, as the markets’ calm reaction to Greece’s capital controls and the “no” vote in the referendum showed. More important, it would lead other countries to adopt more prudent financing and steer clear of the debt trap that caused the bubble in the first place.
Until Europe is turned into a federal state — as it should become, at some point — it will not have a currency like the dollar. Until then, what is needed is a “breathing” currency union, with orderly entry and exit options, coupled with an insolvency rule for member states. This would be a better compromise between the goals of avoiding speculative attacks and excessive debt accumulation than the current promise of eternal membership.
Hans-Werner Sinn is a professor of economics and public finance at the University of Munich.
Follow The New York Times Opinion section on Facebook and Twitter, and sign up for the Opinion Today newsletter.
Greece Is Already Partial To Communism--The EU Must Be Wary Of Pushing The Country Further Away
WRITTEN BY
Pythagoras Petratos
Mr. Petratos is an economist and lecturer at Saïd Business School at the University of Oxford.
Greece, the birthplace of democracy, philosophy and ethics, has managed to overcome tremendous difficulties in history by retaining the fundamental ideal of liberty. It was when this principle deteriorated that the country faced hardship and misery—as it is now. Both political and economic freedoms have eroded in Greece, dragging it further from the West and closer to Russia, Venezuela and Cuba.
How communism has influenced Greece’s history
Communism and radical leftism have a long historic narrative in Greece. When the Soviet Union suddenly collapsed after failing to deliver its promised “Communist dreamland,” it surprised almost everyone. But Greece never fully realized this fall’s significance. Nostalgia about a communist utopia persisted in the minds of some citizens, and this underlying narrative has cultivated an attachment with Russia over the years. NATO, the European Union and the United States, on the other hand, were often demonized.
The Greek people are now suffering because the government has continued to implement Communist-like policies. A huge leviathan state with strong trade unions, nationalized industries, barriers to business freedoms and a massive corrupt bureaucracy have all diminished wealth creation in the country.
The referendum and bailout reflect Syriza’s left-wing heritage
Greece’s referendum and the slow-going bailout negotiations astonished many—though they shouldn’t have. Prime Minister Alexis Tsipras is an admirer of Cuba and Venezuela. There are claims his younger son’s middle name, Ernesto, is homage to Che Guevara. Tspiras has also called Hugo Chavez a “great leader” and said people all over the world would follow in his path soon enough. Greece is just doing so earlier than anticipated.
Many voters, include those in Tsipras’ own Syriza party, may not share in this vision but Syriza is a mosaic of political fractions. Some may be small, but they are no doubt radical: The vociferous Marxist, Trotskyists and Maoists communist convictions all influence the prime minister.
The country’s political climate is to blame
But to be clear, Tsipras is not the only one responsible for Greece’s financial mess. The country’s sizable debt is a cause of many years and many governments. No wonder Greek citizens have lost faith in those who got them into this chaos and still aren’t sure how to get them out of it: politicians.
It has created a vacuum that is only growing thanks to the country’s continued economic demise. Signing the recent bailout deal was a step in the right direction, but the question remains whether the coalition government will be able to effectively implement the terms—even if Tsipras would like to.
Greece’s travails may force it to shift to the East
All this doubt makes it easier for Greece to distance itself from the West. If the EU isn’t willing to try anything other than austerity measures, why not search for new allies, like Russia, who appeal to the public?
Its old communist ties not only create a sense of familiarity for the Greeks, but they also see a country that faces the same struggles. Russia’s historic confrontation with the West and NATO can be paralleled with Greece’s fight against the troika.
Closer cooperation between the two countries has already begun: Vladimir Putin and Tsipras met recently to discuss energy support and building a pipeline comparable to Nabucco (natural gas reserves around Greece’s seabed are estimated to be worth billions). Russia can take it one step further by providing Greece with security and resources, thus extending its reach into the Mediterranean. Watch for escalating events in Ukraine to make this a more likely scenario.
The EU must truly reflect on the current crisis. Its inability to strategically contain Russia has exposed a clear and present danger. Further negligence to do so would result in Greece becoming a failed state, leading to unpredictable economic and geopolitical consequences. The EU should guarantee security from coercion to individual citizens and states. But most importantly it should offer hope to every Greek and EU citizens for a bright future.
And the greatest hope it can offer is a revolution for liberty.
THE ASSOCIATED PRESS
Friday, July 24, 2015 at 11:34 p.m.
ATHENS, Greece
Greece on Friday invited the International Monetary Fund to participate in its negotiations with European creditors over a vital third bailout — talks that are expected to start next week after a few days' delay and must conclude before Greece faces another big repayment Aug. 20.
Negotiators are now expected to arrive in Athens over the weekend with talks probably starting Monday, Greek officials said.
In a statement Friday evening, the IMF confirmed it had received Greece's request for a new IMF loan and said it would work to arrange talks with Greece and its European creditors.
Athens is looking to secure yet another bailout — the third since its finances imploded in 2009 — worth 85 billion euros over three years. Without the money, the country faces imminent bankruptcy and a probable exit from the shared euro currency.
The letter to the IMF, signed by Finance Minister Euclid Tsakalotos, formally requests a new bailout from the fund. That is in accordance with the preliminary third bailout agreement Greece struck with its European partners on July 12, which called for IMF financing and monitoring for Greece from March 2016 — when current IMF financing ends.
The letter said Athens believes it will take "several quarters" before the Greek economy faces up to its challenges "and returns to a vigorous and sustainable path to growth with fairness and social inclusion."
"We look forward to continued cooperation with the Fund," it added.
Greek government spokeswoman Olga Gerovasili said the final third bailout agreement will be brought to Greece's parliament for approval on Aug. 18.
"Clearly, the negotiations will be constant until then," she said Friday.
Greece has a debt repayment of around 3.2 billion euros to the European Central Bank on Aug. 20.
Greece's five-year financial crisis took a dramatic turn for the worse this summer, after talks between its radical left-led government elected in January and the country's creditors nearly collapsed amid sharp disagreements over the reforms required in return for the rescue loans. The new bailout was only possible after Prime Minister Alexis Tsipras made a sharp U-turn from years of vehemently opposing further cutbacks.
Since its first bailout in 2010, Greece's economy has shrunk by a quarter, while unemployment has rocketed to record peacetime highs and incomes have shrunk an average of 40 percent. Much of the pain has been attributed to the income cuts and tax hikes demanded by creditors.
It's unclear to what extent IMF participation complicates the latest bailout talks. The fund has been critical of many of the demands insisted upon by Greece's European creditors but it also says Greece needs deep, meaningful debt relief — something that Germany and other European nations are dead set against.
Gerovasili said the IMF position on Greece's crippling debt load — the highest in the 19-country eurozone — "is clearly something we agree with."
But she added the fund "is tougher in negotiations, with harsher terms, and is not very agreeable to us as a negotiator."
Gerovasili dismissed reports that security concerns delayed the talks Friday, blaming "technical issues" instead.
"Greece is a safe country," Gerovasili said. "Both sides are trying to expedite the start of talks."
The final hurdle Greece had to clear before talks could restart came early Thursday when Greek lawmakers approved creditor-demanded judicial and banking reforms.
Why Greece Should Leave the Eurozone
By HANS-WERNER SINN
JULY 24, 2015
MUNICH — THERE are not many issues on which I agree with my colleagues Paul Krugman and Joseph E. Stiglitz and the former Greek finance minister Yanis Varoufakis. But one of them is the view that an exit from the eurozone would be advisable for Greece.
Unfortunately for Greece and for Europe, we may now have to live with a third bailout program, in which Greece will receive a rescue package worth 86 billion euros (about $94 billion) in return for additional austerity measures. The new agreement will most likely drag Greece through three more years of a long-lasting, costly experiment that has so far failed miserably.
As of June, the eurozone countries, the European Central Bank and the International Monetary Fund had provided the Greek government and banking system with 344 billion euros ($375 billion) worth of public credit — nearly double Greece’s annual economic output, or about 31,000 euros ($33,000) for each Greek citizen.
One-third of the public credit that has flowed to Greece since 2008 has been used to bail out private creditors; one-third went to finance the Greek current account deficit (the excess of imports and net interest payments to foreigners over exports and transfer payments from abroad); and one-third vaporized by financing the capital flight of Greeks.
The public credit has delayed a Greek bankruptcy, but it has failed to revitalize the Greek economy. To compete, Greece needs a strong devaluation — a relative decline of its price level. Trying to lower prices and wages in absolute terms (for example, by slashing wages) would be very difficult, as it would bankrupt many debtors and tenants.
It would arguably be better to inflate prices in the rest of the eurozone, as the European Central Bank is trying to do through quantitative easing: purchasing large quantities of bonds to drive down the value of the euro. If the rest of the eurozone posts inflation rates of slightly less than 2 percent, as the E.C.B. hopes, Greece would be competitive after a decade or so, provided that its price level stays put. However, even such a mild form of an “internal devaluation” would be very arduous, as it would require precisely the kind of fiscal restraint that the Greeks rejected in the referendum.
What about the solution favored by leftists: more money for Greece? No doubt, enormous government spending would bring about a Keynesian stimulus and generate some modest internal growth. However, apart from the fact that this money would have to come from other countries’ taxpayers, this would be counterproductive, as it would prevent the necessary devaluation of an overpriced economy and keep wages and prices above the competitive level.
Take the case of Ireland. Like Greece, Ireland became too expensive, as interest rates fell sharply during the introduction of the euro. When the bubble burst, in late 2006, no fiscal rescue was available.
The Irish tightened their belts and underwent a drastic internal devaluation by cutting wages, which in turn led to lower prices for Irish goods both in absolute and relative terms. This made the Irish economy competitive again.
Granted, Ireland also received fiscal aid. But that came much later, toward the end of 2010, and when it came, the internal devaluation stopped almost immediately. Twelve of the 13 percentage points of the Irish decline in relative product prices came before that date. Of the eurozone countries hardest hit by the financial crisis, Ireland will be the only one this year to see its G.D.P. surpass its precrisis level.
Greece’s devaluation started five years after Ireland’s, and by now has reached 9 percent. Analysis by Goldman Sachs researchers suggests that product prices would have to decline by another 13 to 22 percentage points for Greece to be competitive. (Wages in neighboring Turkey, Bulgaria and Romania, the latter two being European Union members, are only one-third to one-fifth Greece’s level.)
The better alternative is a Grexit accompanied by debt relief, humanitarian aid for the purchase of essential imports and an option for eventual return to the euro. Greece could reintroduce the drachma as the only legal tender. All existing prices, wages, contracts and balance sheets, including internal and external debt, could be converted one-to-one into drachmas, which would immediately decline in value.
The devaluation would induce Greeks to buy domestic rather than imported products. Tourism would get a boost, and capital flight would be reversed. Rich Greeks would return with their money, buy real estate and renovate it, fueling a construction boom. As the trade deficit gradually turned into a surplus, creditors would get some of their money back.
Greece would have the option to return to the eurozone, at a new exchange rate, after carrying out institutional reforms — such as public recording of land purchases, functioning tax collection, accurate statistical reporting — and meeting the normal conditions for eurozone membership. It could take five or 10 years.
It is true that Grexit would make it clear that membership in the eurozone is not irrevocable and could expose member countries to speculative attacks. But this is not very likely, as the markets’ calm reaction to Greece’s capital controls and the “no” vote in the referendum showed. More important, it would lead other countries to adopt more prudent financing and steer clear of the debt trap that caused the bubble in the first place.
Until Europe is turned into a federal state — as it should become, at some point — it will not have a currency like the dollar. Until then, what is needed is a “breathing” currency union, with orderly entry and exit options, coupled with an insolvency rule for member states. This would be a better compromise between the goals of avoiding speculative attacks and excessive debt accumulation than the current promise of eternal membership.
Hans-Werner Sinn is a professor of economics and public finance at the University of Munich.
Follow The New York Times Opinion section on Facebook and Twitter, and sign up for the Opinion Today newsletter.
Greece Is Already Partial To Communism--The EU Must Be Wary Of Pushing The Country Further Away
WRITTEN BY
Pythagoras Petratos
Mr. Petratos is an economist and lecturer at Saïd Business School at the University of Oxford.
Greece, the birthplace of democracy, philosophy and ethics, has managed to overcome tremendous difficulties in history by retaining the fundamental ideal of liberty. It was when this principle deteriorated that the country faced hardship and misery—as it is now. Both political and economic freedoms have eroded in Greece, dragging it further from the West and closer to Russia, Venezuela and Cuba.
How communism has influenced Greece’s history
Communism and radical leftism have a long historic narrative in Greece. When the Soviet Union suddenly collapsed after failing to deliver its promised “Communist dreamland,” it surprised almost everyone. But Greece never fully realized this fall’s significance. Nostalgia about a communist utopia persisted in the minds of some citizens, and this underlying narrative has cultivated an attachment with Russia over the years. NATO, the European Union and the United States, on the other hand, were often demonized.
The Greek people are now suffering because the government has continued to implement Communist-like policies. A huge leviathan state with strong trade unions, nationalized industries, barriers to business freedoms and a massive corrupt bureaucracy have all diminished wealth creation in the country.
The referendum and bailout reflect Syriza’s left-wing heritage
Greece’s referendum and the slow-going bailout negotiations astonished many—though they shouldn’t have. Prime Minister Alexis Tsipras is an admirer of Cuba and Venezuela. There are claims his younger son’s middle name, Ernesto, is homage to Che Guevara. Tspiras has also called Hugo Chavez a “great leader” and said people all over the world would follow in his path soon enough. Greece is just doing so earlier than anticipated.
Many voters, include those in Tsipras’ own Syriza party, may not share in this vision but Syriza is a mosaic of political fractions. Some may be small, but they are no doubt radical: The vociferous Marxist, Trotskyists and Maoists communist convictions all influence the prime minister.
The country’s political climate is to blame
But to be clear, Tsipras is not the only one responsible for Greece’s financial mess. The country’s sizable debt is a cause of many years and many governments. No wonder Greek citizens have lost faith in those who got them into this chaos and still aren’t sure how to get them out of it: politicians.
It has created a vacuum that is only growing thanks to the country’s continued economic demise. Signing the recent bailout deal was a step in the right direction, but the question remains whether the coalition government will be able to effectively implement the terms—even if Tsipras would like to.
Greece’s travails may force it to shift to the East
All this doubt makes it easier for Greece to distance itself from the West. If the EU isn’t willing to try anything other than austerity measures, why not search for new allies, like Russia, who appeal to the public?
Its old communist ties not only create a sense of familiarity for the Greeks, but they also see a country that faces the same struggles. Russia’s historic confrontation with the West and NATO can be paralleled with Greece’s fight against the troika.
Closer cooperation between the two countries has already begun: Vladimir Putin and Tsipras met recently to discuss energy support and building a pipeline comparable to Nabucco (natural gas reserves around Greece’s seabed are estimated to be worth billions). Russia can take it one step further by providing Greece with security and resources, thus extending its reach into the Mediterranean. Watch for escalating events in Ukraine to make this a more likely scenario.
The EU must truly reflect on the current crisis. Its inability to strategically contain Russia has exposed a clear and present danger. Further negligence to do so would result in Greece becoming a failed state, leading to unpredictable economic and geopolitical consequences. The EU should guarantee security from coercion to individual citizens and states. But most importantly it should offer hope to every Greek and EU citizens for a bright future.
And the greatest hope it can offer is a revolution for liberty.
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