by Ambrose Evans-Pritchard *
Nobody has taken responsibility for the disastrous errors made by the EU-IMF Troika in Greece, where youth unemployment has just reached 58.3pc.
Nobody has resigned, or missed a day’s pay, or faced any kind of censure from an elected body, despite the withering indictment just issued by the IMF.
Worse yet, the basic conceptual policy errors that led to this tragic episode have not been fully corrected.
With a little trimming here and there, the eurozone is sticking to the same mix of self-defeating contractionary policies that have tipped the region back into a double-dip recession, with seven quarters in a row of falling GDP, soaring unemployment, and an ever starker divergence with the United States.
Just to recap what our man Bruno Waterfield reported from Brussels, the IMF’s mea culpa admits that the Troika sacrificed Greece to save the euro.
It completely misjudged the ferocity of the downward spiral caused by austerity a l’outrance, and then blamed the victim by pretending that Greece was failing to comply with the terms.
The Troika recoiled from the standard IMF policy of debt restructuring for Greece in 2010 because it was “politically difficult” for countries (France? Germany?) whose banks held Greek bonds.
The report said the terms of the rescue violated three of the IMF’s four key rules for lending to insolvent countries, no small matter given that it was the biggest loan the Fund has ever made in proportion to a member’s quota, and given that staff were “unable to vouch that public debt was sustainable”.
It admitted that the 2010 package was a “holding operation” that “gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy”.
The European Commission defended itself yesterday, saying a debt restructuring in 2010 would have caused havoc in the bond markets and virulent contagion. This is true, but what kind of a defence is that?
Yes, everybody feared a chain-reaction of sovereign defaults reaching Italy and Spain, but this was entirely because the ECB was recklessly refusing to carry out its responsibility as a lender of last resort, the ultimate purpose of any central bank. In doing so, it was endangering the entire global financial system.
You can trace this paralysis to Maastricht and the nature of the ECB mandate, but as the Draghi (OMT) backstop for Italy and Spain has since demonstrated, what it really showed was that a lot of ECB governors were out of their depth, or pursuing naked national agendas, or both, and hiding behind what are in reality very elastic treaty clauses)
The IMF makes it crystal clear that the EU institutions and the leaders of EMU countries (still refusing to face up to the implications of EMU, or admit to their own voters that monetary union costs real money) were the chief villains in this saga.
What we see is a near perfect exhibit of what is wrong with the European Project. There is no mechanism of accountability. The buck stops nowhere.
I don’t wish to pick on Economics Commissioner Olli Rehn, although one’s patience runs out after listening to the Commission’s retort that the IMF is “plainly wrong”.
Mr Rehn is a decent man, with an impossible task, carrying responsibility without power. The politicians of the northern EMU states and the ECB are chiefly to blame.
I wrote at the time that Germany’s Wolfgang Schauble crossed a line by threatening to eject Greece from the euro and persistently vilifying the Greeks for failure to comply, when the essential failure was the policy itself. Greece kept missing deficit targets because the economy was collapsing, causing tax revenues to shrink.
Yet Mr Rehn is the titular official in charge. The Troika is “his” baby. If he were the finance minister of a democratic state he would surely have to resign after such blistering demolition of his tenure.
The fact that nobody ever resigns for botched policies in the EU system (Pace, the Santer Commission: the exception that proves the rule) should not deter Mr Rehn from falling on his sword from a high sense of honour. Such a gesture would clear the air, and mark a recognition that the policy formulae of EMU must be swept away to allow for recovery.
His director-general of economic and monetary affairs, Marco Butti, has admitted that the fiscal multiplier is higher than normal in a countries during a region-wide slump where the financial system has partially broken down and interest rates are near zero, and therefore that fiscal tightening does more economic damage.
But he admits it only in hindsight. The Commission now argues that the return to calm after the Draghi `Put’ has lowered the multiplier again, so there is no real need to change policy (other than letting the fiscal stabilizers do their work, avoiding the mistake of yet further tightening to chase missed deficit targets)
If no such resignation comes from Commissioner Rehn, we know the Rehn of Terror will go on. The regime will persist in destructive folly, adding 100,000 people to the jobless rolls each month.
Just a reminder of the scale of error, which I wrote about in this blog last year.
The Troika originally said that Greece’ economy would contract by 2.6pc in 2010 under the austerity regime, before recovering with growth of 1.1pc in 2011, and 2.1pc in 2012.
In fact, Greek GDP remained in an unbroken free-fall. It did not grow in either year. It contracted a further 7.1pc in 2011, 6.4pc in 2012.
Roughly speaking, the Troika misjudged the scale of economic decline over three years by 12pc of GDP. The total decline will be around 25pc, surely a Great Depression.
Don’t tell it was hard to foresee. The Greek Labour Institute and the think tank IOVE produced very accurate forecasts. The truth is that the Troika’s ideology of “expansionary fiscal contraction” is bunk, and doubly dangerous when compounded by tight money.
Like the Spartans, Thebans, and Thespians at the Pass of Thermopylae, the Greeks were sacrificed to buy time for the alliance.
Instead of applause, they were then vilified for their heroic efforts by ill-informed and self-interested Dutch, Finnish, Austrian, and German politicians. A squalid episode.
*Ambrose Evans-Pritchard has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London.