“Everybody is worse off”

Die Troika ist wieder in Griechenland. Diesmal soll es u.a. um die 555 OECD-Reformen zur Wettbewerbsfähigkeit gehen. Dabei nehmen die “Men in Black” offenbar keine Rücksicht auf die Kritik von Europaabgeordneten und Ökonomen, die ihnen Versagen vorhalten. Ein Interview.

Zsolt Darvas ist Ungar und forscht am Brüsseler Thinktank Bruegel. Dieses Gespräch habe ich Mitte Januar geführt. Hervorhebungen von mir.

Let us talk about the economic advice the Troika gave to countries like Greece. What is your assessment?

The basic assumption, that Greece had to consolidate public finances and to introduce structural reforms, was quite right. There is no doubt on that, Greece had a budget deficit of 15% in 2009 and public debt to GDP ratio well over 100%! The problem is, that the Troika relied on too optimistic assumptions. Still, the programme was broadly on track during the first six months. But when in late 2010 and in early 2011 it became clear that Greece needed a debt restructuring, the Troika vehemently opposed it. The programme lost its credibility, massive speculation started, and Greece missed its targets. But instead of adapting the conditions to the new situation, the Troika asked for even more fiscal consolidation. This was the major mistake. It created a vicious circle, with a negative impact on the output and a higher nominal budget deficit. Greece entered into a major downward spiral that continued until 2013. But the Troika rejected all requests for a public debate.

Nevertheless, the debate took place – not in Brussels, but in Washington. I am referring to the so-called fiscal multipliers…

Yes, the IMF has learnt a lesson on this issue. What had happened? In Greece, the gap between the predictions of the Troika and the outcome in terms of economic growth was as high as 20 per cent! Even in Ireland, there was a gap, from about 3-4 per cent. How could this happen? Well, the so-called fiscal multipliers, that act on the growth of an economy, are much higher in an economic downturn than in normal times. This is what the IMF admitted in 2013, whereas EU commissioner Rehn wrote a letter to the Eurogroup saying that the debate on fiscal multiplier was pointless.

In his hearing at the EP, Rehn did not give the impression that he changed his mind…

I think a professional debate on the impact of fiscal consolidation on the economy is fully justified and this debate should have taken place much earlier.  The debate started too late and by then the Troika asked for more and more and more fiscal consolidation and thus created a reason for the disaster. On the other hand, the Troika had the authorisation to manage a certain amount of money to Greece and therefore when the budget deficit became larger due to the worse than expected economic performance, it had to choice of asking for more fiscal consolidation from Greece or asking for more money from the lenders. The Troika decided the first option, which after all has not prevented the second option, since beyond the initially committed 110 billion euros a second programme was needed with a total of twice as much. And there are now talks about a third programme as the second programme is unlikely to be sufficient. So everyone became worse off: the Greek suffered from a much larger GDP and employment fall, while lenders had to lend much more money.

But is the Troika really open for a debate?

I am afraid it is not. I still recall a meeting with experts from the IMF and the Commission in june 2011. Both did not see any reason to change the Greek programme, and this was just one month before the EU summit that took the first decision on debt restructuring!

But the disaster in Greece, as you called it, must have some consequences for the Troika…

Sure, and to some extent, it had. For example, the IMF replaced two thirds of its experts in Europe. They admitted that they had made a mistake. The ECB, on the other hand, was a very silent partner. It was against bailing-in in Ireland and Greece, but now it is open to this. In this sense, the ECB also learned some lessons.

And how about the Commission?

Well, the Commission did not acknowledge publicly that it made mistakes. This is unfortunate; it should come out with an honest evaluation of the programme.

Zu diesem Thema hat “Bruegel” mehrere Studien veröffentlicht, sie stehen hier. Siehe auch meinen Blogpost “Völlig uneinsichtig” zur Anhörung Rehns im Europaparlament