The Cost of a Haircut: Greece, Eurozone, IMF
NEW YORK ( TheStreet) -- Earlier, I noted there were two parts to the International Monetary Fund Stand-By Program for Greece: austerity and increasing its competitiveness. However, by the beginning of 2012, the IMF had concluded that the austerity part of its plan for Greece had failed. Why?
On July 4, the IMF estimated that GDP would decline by 4% in 2011 and by 1% in 2012. Six months later, the IMF concluded GDP would fall 6% in 2011 and another 4% in 2012.
IMF estimates were wildly optimistic on unemployment as well. Last July, it projected unemployment at 16% in both 2011 and 2012. Six months later, the fund raised the projection to 18% in 2011 and 20% the following year.To its credit, the fund saw what was happening and gave up on austerity measures. Its Stand-By Program was ended early, and its new Extended Fund Facility Program emphasizes labor market reforms and other measures to make Greece "competitive." Germany continues to have a different perspective: more austerity. And to that end, it forced other euro countries to accept a European Union treaty amendment: Government deficits should be no more than 1% of GDP. Because the IMF (at least for now) has given up on austerity while Germany and other strong euro countries still promote it, a rift between the IMF staff and euro countries has developed. But while the euro countries are more supportive for Greece, the IMF remains in control of what gets done: it set the conditions for disbursements and it polices them.
Old and New ProgramsThe first bailout program for Greece was 110 billion euros, with the IMF Stand-By providing 30 billion euros (27%) and euro countries providing 80 billion euros (73%). Table 1 provides details on disbursements and cancellations. Table 1. -- Original Greek Bailout Funds
(in billions of euros)
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