- The Economic Consequences Of Greece!
by Tyler Durden, www.zerohedge.com
Authored by Alberto Bagnai, Brigitte Granville, and Antoni Soy, originally posted at Project Syndicate,
… When the euro crisis erupted in 2010, European officials realized that they lacked the necessary expertise to manage the threat of sovereign defaults and the potential breakup of the monetary union. For EU officials, avoiding the eurozone’s collapse became the top political imperative, so they turned to the IMF for help. The irregularities in the Fund’s resulting intervention attest to how serious the eurozone’s problems were – and continue to be.
Another problem is the sheer magnitude of the Fund’s intervention. The size of the Greek debt necessitated lending on a scale far exceeding what other countries could expect. The “exceptional access” to IMF resources granted to Greece in 2010 was set at a “cumulative limit of 600%” of the country’s IMF quota, a measure of a country’s financial commitment to the IMF. Instead, in April 2013, cumulative financing was programmed to peak at 3,212% of Greece’s quota.
The reason the IMF had to take on such huge exposure was Europe’s initial refusal to contemplate debt reduction for Greece, owing to the authorities’ fear that financial contagion would overwhelm the eurozone’s firewall-free banking system.
Initially, the IMF took the official position that Greek debt was sustainable. But IMF staff knew otherwise. In 2013, the Fund admitted that its analysts knew that Greece’s debt was not sustainable, but decided to go ahead with the program “because of the fear that spillovers from Greece would threaten the euro area and the global economy.”