The Troika’s Disaster

The new delay in the disbursement of the tranche of 44 billion from the “troika” (ECB, EU, IMF ) to Greece poses serious problems of economic and political nature to Greece, the entire Euro zone, but also to the International Monetary Fund.

  • it threatens the solvency of the Greek banking system, for whose recapitalization about half of the funds were earmarked;
  • it  opens the way to a new waves of  contagion to Spain and Italy, which are far from being “safe” given the  poor performance of their fundamentals (debt over GDP and growth) and given their political uncertainties;
  • it  destabilizes the Samaras’ risicated majority government who recently managed to get through Parliament the new measures required by the troika in a situation of strong social tensions: huge budget cuts (13.5 billion) and tough reforms of the labor market.

Contrary to Schäuble’s declaration, this delay can not be plausibly attributed to “technical reasons”, such as  the contrast between the EU and the IMF on the timing (2020?) and the target  (120%?) of the requested adjustment path  for the debt over GDP ratio. The reason is political.

The refusal to accept the only possible remedy,  a haircut to the value of the debt, two-thirds of which are in the hands of EU, ECB and IMF in exchange for a large privatization programme and a credible fiscal consolidation plan, can only be explained with the proximity of the German elections in September 2013.

The IMF, where EU countries are collectively  the majority shareholder, would do well to reconsider the terms of its participation in the troika (= sleigh pulled by three horses in use in Russia). If one of the horses (the EU) refuses to run or runs on his own (pursues its own internal political agenda), the sleigh tips over. The loss of credibility of the troika is well illustrated in the figure above. The dotted lines in red indicate the subsequent forecasts of GDP growth made by the troika from 2007 to 2011. The black solid line shows the actual growth of GDP in Greece.

The international community can not afford having the IMF’s forecasts fall to the rank of a joke.

5 Responses to “The Troika’s Disaster”

RikNovember 22nd, 2012 at 1:11 pm

While fully agreeing that the IMF has to protect the little credibility it has left in this case. You miss the German (and other Northern countries) point for the largest part.
1. Germany cannot take a haircut now for German legal reasons. It is simply against their budget law. And that being a formal law can never be changed within a few days time. Which means if it takes a haircut it cannot pay out the next term.
Pretty convenient for Merkel and Co of course but that is the way it is.
And you know as well as I that there will be 1000s of Germans wanting to start on case on that if Merkel would consider otherwise.
2. The main problem with a haircut the way the loans to Greece are structured (directly) it will run over the local budget. That will most likely lead to civil war like situations in the Bundestag.
Merkel might get it through at the end but she has at least 2 more to go (bailing out Cyprus (with the oligarch aspect and Spain).
The Finns and Dutch will be an even larger problem. For Holland it means most likely that the new government would become an old government as it would be sent home. The parliament is not going to accept cuts on other more local things to finance a Greek haircut. Not after the theater they had last month.
Finns I assume you know.

They have to scratch the money from all places to make it work. Very doubtful if the IMF would give in. I would not expect them to do so, they would look like complete uncredible idiots if they did. So it has to come from non haircut sources if it has to work up North.
Meaning that within say half year Greek will miss another deadline by a few miles and all room is already used. Then the haircut question will come up. Most likely short before the German elections so you know the answer.

princess1960November 22nd, 2012 at 5:22 pm

let tham to fait …to kiss to find the resolution ..because i see allways in TV very smilling and friendly….this is good for leadership (for the people i am not sure)
thank you

BearlowNovember 23rd, 2012 at 4:08 am

We should've let them go bankrupt.
Let all existing debts run indefinitely.
Revise interest on debt to 1%.
This way the country cannot but balance
the budget without costs for the rest of
the EU.

lkofenglishNovember 25th, 2012 at 4:18 pm

are there asset sales going on in the EZ? Or are they just trying to "inflate it all away" too? I certainly don't see any "mass quantities of fine art" suddenly appearing for auction…although apparently more than few chateau's have come up for bidding.

EEBNovember 28th, 2012 at 12:28 am

The Greek proletariat has to go all the way. Next time there's a general strike, enough of them are going to have to find the balls to "storm the Bastille", kick out the politicians, and pull off a Bolshevik- style Revolution. Then they can forge their own destiny, but not one moment before. While the Fascist Bourgeoisie and the Troika may be gloating over winning their class war today, for the proles, the reality is: all or nothing at all. Revolution or death! Will they be bold or will they die? Who will survive- the Troika or the Greek proletariat?

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Aaron Menenberg is Foreign Policy and Energy analyst, and a Future Leader with Foreign Policy Initiative. He also co-hosts Podlitical Risk (@podliticalrisk). He is a graduate student in international relations at The Maxwell School of Syracuse University. Previously he has worked at Praescient Analytics, The Hudson Institute, for the Israeli Ministry of Defense, and at the IBM Corporation. The views expressed are his own, and you can follow him on Twitter @AaronMenenberg. He welcomes questions and comments at