Bloomberg, the FT and other sources are reporting that the latest Riga summit has concluded that the IMF is a full part of the Troika, and that the IMF's approval on structural reforms is necessary. The IMF, in turn, is reported as being opposed to a "quick and dirty review", as well as being opposed to rollbacks of earlier structural reforms made by SYRIZA.
Some indicative quotes seen this morning in the press:
IMF staff have told their board they would not disburse aid without a “comprehensive” deal that started to lower debt levels. They also want EU assurances that Greece will be able to pay its bills for the next 12 months, a demand that could require eurozone governments to commit to another bailout programme.
"It has to be a comprehensive approach, not a quick and dirty job," Christine Lagarde, IMF chief, said at an event in Rio de Janeiro on Friday.
Greek officials have told their eurozone counterparts they are worried about the IMF’s hardline stance and have argued their conditions are politically undeliverable, especially when it comes to the pension reforms, which remain the biggest stumbling block.
The IMF has clashed with the European Commission over how tough a line to take, with the commission going so far as to moot cutting the IMF out of a deal. But German officials have bristled at the commission’s interventions and have made clear all three bailout monitors — the IMF, the commission and the European Central Bank — must approve any deal.
Bloomberg (
Merkel, Hollande Tell Greece to Take Route A to Agreement / 22 May 2015):
A government official, in a debriefing after the talks broke up about 1
a.m., signaled Greek frustration by saying that a main obstacle is that the
International Monetary Fund needs to be on board. “Open issues” remain with
creditors, including pensions,
sales-tax rates and targets for a primary budget surplus, the official told
reporters.
A short statement
released separately by the French and German governments after more than two
hours of talks with Tsipras was devoid of earlier optimism expressed by
Hollande at paving the way for an accord as soon as the end of the month. In
its place, the governments of the two biggest euro-area economies talked of
agreement “to stay in close contact.”
While the IMF is in principle correct in questioning whether Greece is committed to reforms, and whether it will be able to sustain funding targets in 2015, some of the IMF's insistence on reforms is misplaced.
I refer, for instance, to the Fund's insistence that collective bargaining restrictions be lifted in Greece. Greek law already allows for sufficient latitude to dismiss workers: I have seen this first hand during involvement in a Greek privatisation in 2013.
Moreover, it is difficult for anyone involved with the "real" Greek economy to understand why this is even a priority right now. There is not a single investor I know for whom collective bargaining is a serious issue regarding operations in Greece right now. On the contrary: there are far more important challenges to investing or restructuring in Greece.
The main challenge is gaining government licensing for new investments or renovations of existing investments. We have seen on any number of occasions that gaining approval to build or even renovate a hotel, for instance, is beset with useless approval seeking from over 15 main authorities (with multiple steps typically necessary within each authority).
The second challenge is gaining respite from the huge bureaucracy (approvals-process) of normal operations in Greece. For instance, the approvals necessary to operate a restaurant, or to export a container of food, are insane, and useless for any real purpose of consumer protection.
The third challenge is the corruption that is engendered by the first and second challenges. The more approvals necessary, the higher the payoff necessary to operate.
I also don't see the IMF making any practical suggestions about reforming the justice system. Speaking frankly, the reason corruption and bad business practises survive in Greece is because getting a court decision can take years to resolve, and then the decisions are often never implemented by civil authorities. The IMF's focus on "improving the business environment" are interesting, but without focussing on the reality, these are mainly ivory-tower theory.
This is only one of many reforms which may look good on paper, but are not important in practise. Once again, a lack of prioritisation prevails.
Without knowing what SYRIZA will do, I'm beginning to wonder if this isn't the straw that breaks the SYRIZA back. If I myself am not convinced by certain IMF reform priorities, how will SYRIZA convince its own voters?
(c) Philip Ammerman, 2015
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