A day after agreeing to discuss a new Greek bailout, the International Monetary Fund (IMF) has warned European Union leaders that their expectations for Greece’s financial future are unsupported by the facts. A realistic accounting of things requires Europe to agree to forgive Greece’s debts or else leave them uncollected for a generation, a leaked report from the group says.
The IMF is a key player in the international finance community that shapes the Greek negotiations. In a report obtained by Reuters, IMF officials underscore what a variety of observers have been writing about the situation for some time now: that Greece cannot be asked to undertake further austerity or repay its massive debts in full on a standard schedule.
Either Greece must be allowed to make no payments at all on its debts for three decades or the country’s creditor nations must accept that they’re never getting all their money back, the IMF document reportedly says. European leaders agreed Monday to re-open negotiations for a new bailout with Greece roughly a week after Greek voters soundly rejected a proposal to extend the existing austerity-for-loans deal …
… Germany ought to know better, according to French inequality economist and debt scholar Thomas Piketty. In a recent interview with German newspaper Die Zeit, Piketty pointed out that Germany itself “has never repaid its debts. It has no standing to lecture other nations.” The country’s modern prosperity owes in part to international agreements to ease Germany’s cross-border debt obligations, in particular after the end of World War II. Germany’s post-war debt burden was also about 200 percent of its GDP — and 60 cents of every dollar of those debts was cancelled outright while the rest was restructured on a more generous repayment timeline.
“We need a conference on all of Europe’s debts, just like after World War II,” Piketty said. “A restructuring of all debt, not just in Greece but in several European countries, is inevitable.” He called austerity proponents’ projections of how Greece could control its budget deficits in the coming years “completely ridiculous.”
The IMF report may lack Piketty’s analogical flair and historical sweep, but its conclusions appear basically aligned with his. The report “noted that few countries had ever managed to sustain the primary budget surplus…expected of Greece” according to Reuters and “challenge[s] the assumption by some European officials that Greece will be able to meet some of its financing needs from the markets” rather than from its European partners.