World Economy

Greece Should Have Been More Careful About IMF Offers

The IMF could write off its debt and lighten Greece’s burden.The IMF could write off its debt and lighten Greece’s burden.

“Beware of Greeks bearing gifts,” wrote the ancient Roman poet Virgil. In the 21st century, it’s the Greeks who should have been more careful about accepting offerings—specifically from the International Monetary Fund, which is now torturing the country in a misguided effort to get its money back.

Greek officials have worked hard to shore up their economy and finances. From 2010 through 2016, the government achieved the all-but-impossible task of shrinking its primary budget deficit by nearly 18% of gross domestic product, and is finally in surplus. After a brutal contraction of almost 30%, the economy is exhibiting positive signs in almost every area—industrial production, new automobile registrations, construction permits, tourist arrivals, Bloomberg reported.

The banking sector, too, has made great strides. After two full inspections of their loan books—first by BlackRock in 2013 and later by the European Central Bank’s Single Supervisory Mechanism—the banks have been fully recapitalized twice. They have bolstered their provisions against bad loans, and their capital ratios are now significantly higher than the European average, providing a buffer against any future losses.

Greece, however, still carries a heavy burden: the roughly €250 billion ($300 billion) that the IMF and its European partners lent the country to save its economy and most likely the entire eurozone. This stock of official bail-out debt remains due even though private creditors have been amply haircut, restructured and wiped out. In 2012, for example, the government’s private-sector bondholders were forced to accept a loss of nearly 80%. Greek bank shareholders have seen their investments wiped out twice in recapitalizations.

The IMF could write off its debt and lighten Greece’s burden. This would benefit the country’s long-term economic health, and therefore Europe’s, too. Instead, the fund is demanding further austerity measures and insisting on “structural” reforms of dubious value. By sticking to this economic ideology, it is neutering the nascent economic growth and stifling any hope of real prosperity.

The IMF came forward as Greece’s savior during Europe’s financial crisis, but now it looks more like a frenemy. Amid crisis, the IMF agreed to lend an eye-popping 3,212% of Greece’s quota. Together with loans from the fund’s European partners, Greece’s official-sector debt amounts to more than 135% of GDP.

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