IMF, not troika, can arrest ill-feeling sundering EU
OPINION:AS THE euro crisis continues to unfold, very little attention is being paid to its impact on relations between euro member states and their peoples. The worsening crisis in Greece has led to a level of political toxicity never before seen in the history of the European Union.
In Greece, entering its third year of cutbacks and experiencing a deepening recession, attitudes towards the EU are best captured by the symbol of a burning German flag or the substitution of “Berlin” for “Greece” on the name plate of a bank. Germany as the largest and most powerful member state is bearing the brunt of the odium.
On the other side of the equation, the creditor countries are running out of patience with Greece. In a Financial Times opinion piece last June, Mario Monti, now Italy’s prime minister, spoke of the “unhealthy politeness towards each other” among members of the European Council. This stemmed from the fact that the EU was always characterised by a combination of traditional diplomacy and politics.
Well, the “unhealthy politeness” is over. This was palpable in the attitudes of euro finance ministers to their Greek counterpart at the euro group meeting in Brussels last week. The taboo has been broken on the question of Greece’s future in the euro. Greece’s reputation and credibility are at an all-time low in the EU. The situation is damaging both for Greece and the EU.
In over 30 years of EU membership, the Greek politico-administrative system failed to internalise one of the core necessities of successful membership, namely that to be a member state requires a strong and adaptive state capacity.
Put simply, membership demands more – not fewer – domestic institutions, policies and politics. This was a lesson that Ireland learned painfully in the 1980s and forgot far too quickly in the boom times. A robust capacity for reform and adaptation is one of the features that distinguishes well-governed European states from the others.
In an enfeebled state, Greece faces the dual challenge of fiscal consolidation and major structural reform. Both are required in or out of the euro. The suggestion that a budgetary tsar should be sent to Athens was a very bad idea as the kind of reform that is needed in Greece must come largely from within.
Greeks must first want reform and then own it. Technical assistance from outside would buttress the reform process but the drive must come from within.
It is impossible to say how this drama will end, either for Greece or the euro zone.
However, it is clear that Greece will not be returning to the bond markets any time soon and will thus be a programme country for a very long time. In that case, it would be better to transform the troika programme into an International Monetary Fund programme.
In spring 2010, when the EU was mulling over what to do about Greece, there was considerable opposition to any IMF participation in a Greek rescue. The attitude was that Europe should solve its own problems. An excess of hubris accounts for this. Serious sovereign debt problems might arise in Asia or Latin America but not in Europe. That hubris has cost Europe dearly. Notwithstanding opposition from France and the European Central Bank, German chancellor Angela Merkel insisted on the involvement of the fund.
Now is the time for the euro zone to hand over to the fund. The IMF has the experience and expertise to run these types of programmes. It is an expert-led organisation with far greater insulation from political interference than the EU. The IMF cannot lend unless it thinks it will get its money back.
With an IMF-led programme, there is a far better chance of getting the money back and that the programme will work.
The IMF is practised at making conditionality work. The Greek government would deal with the fund and would not have to engage in the internal dynamics of getting all political parties to sign up to the deal. Nor would a Greek prime minister or finance minister have to turn up in Brussels to negotiate a bailout.
From the perspective of the other member states, they would not have to manage a process of rescue and retrenchment in a partner country. The EU would cease to be the enforcer and identified as the source of austerity. The IMF would shield the EU from the deterioration in member state relations that is so evident today.
An IMF-led programme does not mean that Greece would necessarily face an easier time. There is no painless way of addressing the problems that built up in Greece during the 2000s, when a combination of cheap money and profligate spending put it on an unsustainable fiscal trajectory.
An expansion of public sector employment, large wage increases, rising pension costs and tax evasion all contributed. When a country runs out of money or loses access to the financial markets, denial is not an option.
An IMF-led programme would not be without cost to the member states. They would have to channel more money through the IMF just as the US did during the Latin American debt crisis and Japan during the Asian crisis – but in so doing, they would remove themselves from the position of enforcer-in-chief which does not work.