Greece is in reverse. Greek Unemployment Rose to 23.1%, GDP contracted 1.2% last quarter, and now the US is pressuring the IMF to back away from continued bailouts.
4th “Bailout” Needed
Greece’s labor market seems immune to the broader improvements in jobs growth seen elsewhere in Europe where average unemployment has now fallen to a four-year low of 9.8 percent.
The economy, which has the highest debt burden in the bloc at 180 per cent, also suffered a sharp growth setback in the last three months of the year, contracting by 1.2 per cent.
It was the worst GDP performance since the height of its debt crisis in the summer of 2015 and reflects renewed uncertainty in its bailout talks. Average eurozone GDP rose 0.4 percent in the fourth quarter of 2016.
“Bailout” History
US Pressures IMF to Walk Away From Greece
Now, conservatives in US Congress say Europeans should solve the crisis on their own. This puts the IMF Under Pressure Over the Greek Bailout.
In what was labeled an “America First” budget revealed on Thursday, the president proposed a $650m cut in US funding over the next three years for multilateral development banks including the World Bank. He also this week nominated two conservative economists with a history of criticizing the IMF and the Bank for the two top international posts at the US Treasury.
But conservative Republicans in Congress are eager for him to go a step further. They want him to assert US power over such bodies by taking a hard line and opposing further IMF involvement in Greece, which is sliding towards another crisis this summer unless its European creditors agree to cover billions more in debt payments.
A bill introduced on Thursday by Bill Huizenga, a Michigan conservative who was first elected to Congress with Tea party backing in 2011, calls for the Trump administration to oppose any further IMF participation in a Greek bailout. Should the US fail to achieve that aim, the bill would also require the US to oppose any broader IMF quota reforms until Greece had repaid all of its debts to the IMF.
“The IMF is supposed to be a lender of last resort, not a fig leaf of first resort for eurozone members,” Mr. Huizenga said.
“The IMF isn’t a fund to rescue political parties in creditor nations, nor should it be a junior partner to outside organizations that lack the commitment to do their work,” he said. “For seven years now, the IMF has been used to shield eurozone officials from their voters, which has tarnished the fund’s reputation, prolonged Greece’s misery, and put off hard choices about Europe’s future that must be made regardless.”
Grexit Déjà Vu
The Council on Foreign Relations writer Robert Kahn reports Greece on the Brink: Déjà Vu, All Over Again.
Greece appears to have neither the will nor the resources to make its payments, so avoiding default will require European creditors to disburse from their existing loan programs.
Bottom Line: Greece and its creditors are again locked in a showdown over reforms, cash, and debt relief. Another cliff-hanger ahead of heavy July debt payments looks likely. Extend-and-pretend is a dead end for Greece and an increasingly populist Europe, and a more ambitious agreement seems ruled out by bailout fatigue in creditor countries. Markets are once again underestimating the risks of “Grexit.”
Conclusion: All of this suggests that, for economic and political reasons, the window may be closing on a comprehensive resolution of Greece’s crisis. I would not bet against a deal to buy time, though probably without the involvement of the IMF. With each showdown, the risk increases that the Greek government will decide that its economic future is better outside the eurozone.
Key Differences This Time
In regards to bailouts, Kahn notes two key differences between now and past last minute deals.
- The IMF has taken a much firmer stance against the current program, and its fire has been aimed at both the creditors and the debtor.
- The second new element is the rising populist backlash against continued bailouts in the European Union (EU). Notably, it is extraordinarily difficult for a Dutch or German policymaker, pressured by anti-immigration and anti-EU sentiments at home during an election period, to make precedent-setting concessions to Greece on debt.
Greece is Hopeless
Clearly, Greece is hopeless.
But nothing has changed. Greece is no more hopeless today than it was in 2009, three “bailouts” ago.
Of course, those bailouts were never designed to help Greece. They were designed to help Greece’s creditors and to calm down Eurozone fissures.
With new and more important fissures to worry about, Germany and the rest of the Eurozone countries are increasingly prepared to throw Greece under the bus. On its part, Greece was never willing to implement much-needed reforms.
So here we are, Grexit has been staved off so many times now, most think it can never happen.
Mike “Mish” Shedlock
