IMF: Sorry Greece, Ireland, Portugal we were wrong!

International Monetary Fund's Managing Director Christine Lagarde (L) enjoys a visit in Malawi, meeting the colourfully dressed President of the country Joyce Banda (R) in Malawi, Jan. 4, 2013. (IMF picture library).

International Monetary Fund’s Managing Director Christine Lagarde (L) enjoys a visit in Malawi, meeting the colourfully dressed President of the country Joyce Banda (R) in Malawi, Jan. 4, 2013. (IMF picture library).

Sorry Greece, Ireland and Portugal says now the International Monetary Fund, we have grossly underestimated the negative effect on your economies, from our draconian austerity policies we recommended two years ago. This unbelievably blatant recognition, that the Fund, together with the EU Commission and the European Central Bank are applying wrong policies to the over-borrowed Eurozone countries, comes from the most competent source, the chief economist of the Fund and his deputy, Olivier Blanchard and Daniel Leigh.

The official authorisation from the IMF to distribute the report of the two authors came on 3 January 2013.Of course this confession is not officially recognised by the IMF. As the Fund comments, “the views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.”

Still those two guys are the brains behind IMF’s policies, which have sent half of Eurozone’s countries to an unseen before peace-time recession. Greece, Ireland, Portugal and soon to come to the club Spain and Italy are still under this wrong IMF recipe, which has being conclusively adopted by the European Commission, the European Central Bank and Berlin. At this point it must be reminded what was the cost to Greece from the policies the country was forced to apply by this troika of IMF, EU Commission and ECB.

The Sting recently wrote on this respect: “All along the last two and a half years Greece is under the “protection” of the troika of International Monetary Fund, the European Central Bank and the European Commission. Those three institutions theoretically are taking care of Greece’s financial problems, offer more loans and also dictate to the country’s government an economic policy mix of their choice including mainly draconian expenditure cuts. In this way ironically they managed to increase the country’s debt from 115% of the GDP in 2009, to 160% in November 2012. The reason was that the over the same period, Greece helped by troika, lost one-quarter of its Gross Domestic Product. This is by far the largest ever recorded loss of income and product in a developed economy in peacetime”.

In the case of Ireland and Portugal, the other two Eurozone countries which have being following similar programmes conceived by the troika, the negative effects were not that deeply devastating as in Greece, because those two countries apply a bit less tough austerity measures. The idea behind those programmes is to turn government budget deficits into surpluses in a very brief period of time.

The first recognition that the programmes were all wrong came last September, with the acceptance that the three countries need two more years to accomplish the draconian austerity targets set by the troika.  This was the direct outcome of the first hints by the IMF chief economist that the programmes are wrong, a confession made in Tokyo this summer by the writers of the report, during the annual conference of IMF and the Word Bank.

The confession

The two writers courageously recognise that they made mistakes. As they put it: “This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis”.

In plain English the IMF says that they had grossly underestimated the negative effect of tough austerity and cuts of public spending on the economy. Reality showed that a larger than expected multiplier effect led to too much bigger losses of incomes and production in the three programme countries, as a result of the enforced by the IMF cuts in public spending.

Seemingly the Fund economists became conscious this summer of the huge extend of the damage and insisted that the other two members of the troika, namely EU Commission and ECB, also relax their demands from the three countries. The last to change attitude was Berlin, under heavy pressure from the IMF.

In any case Eurozone still follows the same recipe vis-à-vis the Eurozone countries needing financial support but the time horizon of the programmes to achieve fiscal consolidation have been extended by two years.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Developing countries should not be liable for emissions ‘accumulated throughout history’, key UN development forum hears

Why quantum computing could make today’s cybersecurity obsolete

Permanent structured cooperation (PESCO) on the table of NATO Defense Ministers amid US concerns

Who can unlock the stalled Brexit negotiations? UK Premier sticks to her proposal

LGBTQI+ and health care: do they deserve more attention from medical universities?

Sweden well ahead in digital transformation yet has more to do

MWC 2016 LIVE: Ingenu steps up efforts to build LPWA networks across the globe

Taxation: Commission refers Germany to the Court for its failure to apply EU rules on VAT for farmers

Wednesday’s Daily Brief: Libya ‘war crime’ attack, Sudan, Myanmar rights violations continue, ‘xenophobia’ in Assam, South Sudan update

Adriatic Sea: MEPs adopt multiannual plan for fisheries

‘Act now with ambition and urgency’ to tackle the world’s ‘grave climate emergency’, UN chief urges UAE meeting

Competing with Apple and leading innovation: Google’s world replies to EU on android charges

3 things to know about India’s space programme

Civil society organisations disenchanted with “Youth Guarantee”

4 ways to become a ‘business baobab’ on the African economic landscape

Primary Healthcare should be strongly connected with initial education

Three ways Finland leads the world – and education isn’t one of them

Mobile 360 Africa 11-13 July 2017

The Khashoggi affair: A global complot staged behind closed doors

Look Mom, even the House of Lords says the #righttobeforgotten is not right

‘Eden bonds’: how rewilding could save the climate and your pension

Commission steps up EU action to protect and restore the world’s forests

‘Do everything in your power to tackle climate change’ UN chief urges on Mother Earth Day

These European countries produce the most plastic waste per person

Why do medical curricula shouldn’t neglect the Sustainable Development Goals

Mali not fulfilling its ‘sovereign role’ in protecting its people: UN human rights expert

UN experts urge United Arab Emirates to release terminally ill woman to live her last days ‘in dignity’

Seize the opportunities of digital technology to improve well-being but also address the risks

A Sting Exclusive: Towards better business opportunities for the EU and its neighbours, Commissioner Hahn live from European Business Summit 2015

Innovations for Content Professionals at the DCX exhibition 2018 in Berlin, in association with The European Sting

3 reasons why we should vaccinate both boys and girls against HPV

Hungary: Commission takes next step in the infringement procedure for non-provision of food in transit zones

EU Parliament says ‘no’ to austerity budget

This heroic doctor is waging war on rape and the stigma around it

UN working ‘intensively’ to stop Ebola in eastern DR Congo, following second case in major border town

M360 Security for 5G: Security for 5G Predictions 2020, in association with The European Sting

The use of technology in medicine: How to not deconstruct our ethics

Thousands of Belgian schoolchildren have gone on strike to protest climate change

“None of our member states has the dimension to compete with China and the US, not even Germany!”, Head of EUREKA Pedro Nunes on another Sting Exclusive

UN ‘stands in solidarity’ with cyclone-hit India – Secretary-General Guterres

Germany and France only care about keeping their borrowing cheap

China is the first non-EU country to invest in Europe’s €315 billion Plan

Transition between education and employment: how the internship culture is threatening the foundations of our education

Managers’ pay under fire

A Europe that delivers: EU citizens expect more EU level action in future

New Zealand will have a new ‘well-being budget,’ says Jacinda Ardern

Light at the end of the Eurozone tunnel

ECB: Monetary policy decisions

UN chief calls for ‘increased commitment’ to resolution on 10th anniversary of Georgia conflict

Catalonia secessionist leader takes Flemish ‘cover’; Spain risks more jingoist violence

European Youth Forum welcomes steps towards raising awareness of youth rights by EU ministers

How ‘small’ is Europe in Big Data?

Eurozone: The crisis hit countries are again subsidizing the German and French banks

4 reasons cities should embrace Universal Basic Income

FROM THE FIELD: Enslaved Guatemalan indigenous women wait for reparations

What’s going on in Chernobyl today?

Canada has high levels of well-being and solid growth but trade tensions and housing market pose risks while inclusiveness could be improved

COP21 Breaking News_05 December: UN Secretary-General Announces “Climate Action 2016” Partnership

1 in 7 people would choose not to fly because of climate change

Why European manufacturing SMEs in the South face fatal dangers

More Stings?

Comments

  1. Great article. The austerity measures in Portugal, although not as quite as Greece, had terrible effects in the economy and, most important, in people’s life. Anywhere you go, you only hear about crisis and debt… People are not living, they are surviving. We get a lot of criticism for spending too much, but only the ones that don’t have any fault are being crushed. There is a lot of unemployment, and it keeps rising to levels that are unbelievable. Anyway, it is sad and despairing to see my country like this. I’m leaving Portugal because I can’t find a job. A lot of young people is doing the same. This will lead to a lack of qualified professionals…
    The thing is: instead of focusing on reducing the debt, they should focus on the economic growth and then pay the debt.

  2. Some genuinely excellent articles on this web site , regards for contribution.

  3. The European governments should be looking at the unaccountability of the EU Commission , IMF , ECB etc and asking for change . If this is not done there will be more and more hostility to the EU by citizens and demands for referendums, with many people wanting their countries to leave the EU .
    The EU commission and council are contested more and more , especially with their inability to resolve problems , and the massive increase in unnecessary and complicated legislation increasing costs to companies.
    The One SIze Fits All ideas of the EU Commission has been proved not to work , and is one of the reasons for the EU problems . If one size fits all , then why are minimum wages not the same throughout the EU

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s