Greece can’t take this Sisyphean debt cycle much longer

Greece is “back in the headlines,” international media is proclaiming, though for those following the day-t0-day slog of Greece’s economic crisis, it never really left the headlines. Every few months, usually when precipitated by a new report or another payment deadline, the international media perks its ears up and pays attention, and every time, the question is the same: How much assistance should Greece receive? Is it implementing reforms? Should it leave the eurozone?

The time around, it’s a report by the IMF that’s dragged Greece back into the international headlines. The IMF, which is not a participating in the latest bailout and which has previously issued a mea culpa for its misanalysis of an earlier Greek relief program, has continued to take an unequival stance that Greece debt relief. “The analysis suggests that Greece’s public debt is highly unsustainable,” the IMF said.

The IMF noted that even with “full implementation of policies agreed under the ESM program, public debt and financing needs will become explosive in the long run.” Debt relief must be part of the solution, the IMF continues to implore.

On the other side of the ledge are European leaders and lenders who dismiss the IMF’s calls for debt relief, insisting that Greece is “already doing better” than the IMF describes. Greek officials are also, interestingly enough, siding with those who claim that Greece is doing better than the IMF suggests. Of course, there are political considerations involved in such rhetoric.

The crux of the matter is this: at an issue is what targets Greece should meet going forward. The IMF, which has taken a bleaker view of the Greek economy, says that the targets set by European lenders and the Greek government are too ambitious and that the bulk of economic gains have been based on essentially one-off projects or reforms that cannot sustain a long-term recovery. Europe begs to differ and wants to hold Greece to more robust fiscal targets:

While most of the [IMF] board regarded a primary surplus of 1.5 percent of gross domestic product as acceptable, some favored a 3.5 percent surplus — a level few countries have ever achieved, and one which Greece seems unlikely to achieve. The IMF has previously stuck to the 1.5 percent scenario, which it says wouldn’t require additional austerity measures. The EU sees a 3.5 percent surplus as achievable.

There are certain immutable facts that should form the basis of any decision going forward. First and foremost, it is the acknowledgement that the status quo is not working. This hamster-wheel economic crisis has entrapped Greece in a tiresome and ineffective cycle of negotiating deals that have little chance of truly putting Greece on a viable recovery path, trying to implement reforms from those deals, not realizing desired results, negotaiting again a new deal…and on and on and on.

We are now over seven years into this debacle. Greek unemployment has ticked down slightly to about 23%. Yet still, nearly 46% of those 15–24 are unemployed, and nearly 1 in 3 of those aged 25–34 age group are out of work (note that these numbers are basic unemployment rates and do not count for those marginally employed). The eurozone unemployment rate is just 10%.

Greece has seen more than 25% of its GDP wiped out — a catastrophe not seeing by any western economy in modern times.

While it is undisputed that the Greek economy is doing better — and the Greek government can certainly point to various economic indicators to demonstrate that point — moving the needle on unemployment or growth by small degrees masks the fact that while topline indicators suggest a positive direction, they mask the situation on the ground, where there is little hope that this is a viable approach to jumpstart Greece’s economy in the manner required to jolt it out of its lackluster development.

But those numbers are enough for eurozone officials to latch on to to argue that Greece has the capacity for more austerity:

Euro zone officials said on Friday the lenders would ask Greece to take 1.8 billion euros’ worth of new reforms by 2018 and another 1.8 billion euros after then. The measures will be focused on broadening the tax base and on pension cutbacks.

Greece does indeed need substantial reform, especially in its bureaucratic jungle, its inefficiency and more. It also need breathing space, and imposing more austerity in the form of dramatic pension reforms or increased tax rates on those who already can’t afford to pay simply doesn’t make sense. Unfortunately, it’s clear European leaders are swayed more by the political climate in Europe than the facts on the ground, which means that breathing space for Greece probably isn’t on the horizon.

Which brings us back to the IMF…Ashoka Mody, a former deputy director at the IMF, says it’s time for the IMF itself to simply cut its loses in Greece:

Greeks have been subjected to gratuitous pain. Those who can leave are doing so, threatening the prospect of a graying and desolate country. With every passing day, the chances that Europe’s official creditors will see their money are dwindling. Investors have again pushed up yields on Greek bonds, fearing correctly that we are at yet another impasse.

The agony won’t end unless the IMF forces the issue. The IMF and its principal shareholders — the Europeans and Americans — made the original mistake and perpetuated the errors. A mere mea culpa is not enough: Real accountability requires the IMF’s shareholders to honorably accept real losses. That means forgiving the country’s debts to the fund and leaving the Greeks and Europeans to work out their own solution to this mess. If the IMF stays involved, it will succeed only in further shredding its credibility.

Whether it’s from the IMF cutting its loses or from European leaders finally acknowledging that this exhausting scenario cannot simply play out on the international stage every few months while the Greek people live in limbo, something has to eventually give.

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