In a Vox blog post, Olivier Blanchard addresses four critiques against the IMF’s engagement in Greece. He argues that
- the 2010 program did help Greece; without it, Greece would have undergone much harsher “austerity;”
- the financing given to Greece did not only benefit foreign banks; the 2012 PSI amounted to debt relief on the order of 10’000 Euro per capita;
- “[m]any … reforms were either not implemented, or not implemented on a sufficient scale … [m]ultipliers were larger than initially assumed … [b]ut fiscal consolidation explains only a fraction of the output decline”;
- conditionality also reflects political constraints on the part of the lender countries.
Olivier sees the Fund on the sidelines, in particular after Greece’s default against the IMF:
The role of the Fund in this context is not to recommend a particular decision, but to indicate the tradeoff between less fiscal adjustment and fewer structural reforms on the one hand, and the need for more financing and debt relief on the other.
Nicolai Kwasniewski reports in Der Spiegel about the last (?) chance for Greece to avoid Grexit.
- By Wednesday night, Greece has to submit a request for an ESM program.
- After discussing the request, Euro finance ministers will ask the “institutions” to evaluate it and to assess whether the stability of the Euro zone is under threat (a prerequisite for ESM funding), the program is sustainable etc.
- Greece has to submit detailed reform proposals until Thursday. To be acceptable, they will have to satisfy stricter requirements than those the Greek voters recently rejected.
- Euro finance ministers will evaluate the proposals on Saturday.
- EU prime ministers and presidents have the last word on Sunday.
Peter Spiegel, Anne-Sylvaine Chassany and Duncan Robinson report in the FT.
Martin Hellwig argues in the Handelsblatt that the ECB should not cut Emergency Liquidity Assistance (ELA) to the Greek central bank. He makes the following points:
- In 2010, the ECB pressured Ireland to guarantee bank liabilities (vis-a-vis other European banks) by threatening to cut ELA. Such blackmailing is inconsistent with the ECB’s task to safeguard cash and payment systems.
- The same applies to Greece now. As lender of last resort, the ECB should provide funding to Greek banks even (or exactly) when they don’t have access to markets, as long as they are solvent. In principle, the banks may use central bank funding for whatever purpose they see fit; right now, however, the ECB has put restrictions on Greek banks’ purchases of Greek government bonds.
- Are the Greek banks solvent? There are certainly liquidity problems, due to heavy withdrawals triggered by fears that the Greek government may convert Euro into Drachma denominated deposits. Solvency problems are only very recent, due to the economic malaise.
At this point Hellwig stops arguing based on the European treaties.
- Instead, he suggests that the solvency rule could be waived in situations like currently in Greece or in Germany in 1931.
- He concedes that a freezing of ELA could be considered a precautionary measure against Grexit—an event that is not anticipated in the European treaties.
- But it could also be considered a measure that forces Greece into economic turmoil; the Greek banks into insolvency; and Greece out of the Euro area against its will.
Saturday, 27 June 2015 and earlier:
- In a Medium blog post, Karl Whelan provides an excellent discussion of the policy mistakes that worsened the Greek debt crisis.
- Hans-Werner Sinn’s “The Greek Tragedy.”
- Alex Barker discusses in the FT the options for Greece’s banking system.
Sunday, 28 June:
- Christian Rickens comments in Der Spiegel that the upcoming Greek referendum is the price to pay for five years of cowardice, both on the part of the Greek government and its European partners.
- The FT summarizes the main policy decisions during the last days that led the Greek economy to “hit a roadblock.”
- The Economist writes that “[I]n these circumstances a cap on ELA must mean tough restrictions on deposit withdrawals both in cash and through transfers abroad.” It draws parallels to Cyprus in March 2013 where banks closed for two weeks and where capital controls were recently lifted.
- Ekathimerini reports about the decision to close the banks and instate capital controls. It quotes the Greek prime minister as saying that “[Rejection] of the Greek government’s request for a short extension of the program was an unprecedented act by European standards, questioning the right of a sovereign people to decide. … This decision led the ECB today to limit the liquidity available to Greek banks and forced the Greek central bank to suggest a bank holiday and restrictions on bank withdrawals. … One thing is clear: the refusal of a short extension, and the attempt to nullify a democratic procedure is an act deeply offensive and shameful for the democratic traditions of Europe.”
Monday–Tuesday, 29–30 June:
- Claire Phipps summarizes in The Guardian the main elements of the ‘Bank Holiday break’ decree that the Greek prime minister and president enacted during the night, in response to “the extremely urgent and unforeseen need to protect the Greek financial system and the Greek economy due to the lack of liquidity caused by the Eurogroup’s decision on June 27 to refuse the extension of the loan agreement with Greece”.
- Philip Stafford and Roger Blitz speculate in the FT about the implications of Grexit. (See also the earlier post on Lex Monetae.)
- The FT’s liveblog.
- In the FT, Martin Sandbu convincingly addresses questions on the bigger picture, including political aspects of the crisis.
- Anil Kashyap has published “A Primer on the Greek Crisis.”
- In the FT, Shawn Donnan discusses the consequences of a Greek default against the IMF.
- Der Spiegel reviews how the international press assigns responsibility for the crisis.
Wednesday, 1 July:
- In the FT, Peter Spiegel outlines the way forward to a new “Greek” bailout.
- The Economist’s Free Exchange blogger on the limited experience with capital controls (Iceland, Cyprus, now Greece).
Note: This post has been updated repeatedly.
Marc Champion comments in Ekathimerini that the planned referendum question in Greece disguises the relevant trade-offs.
Not once in his address on the referendum did Tsipras mention the common currency. When the Associated Press asked Syriza cabinet minister Panagiotis Lafazanis whether the nirvana of reconstruction and progress he described as following from a “no” vote to the bailout would involve leaving the euro, he said: “It is you [the media] who pose this dilemma.”
In a blog post, John Cochrane explains why a Greek default need not trigger Grexit. And he warns that associating the two could trigger a (faster) bank run.
My colleague Harris Dellas argues in swissinfo.ch that it is too easy to blame a tax dodging elite for the Greek malaise; tax evasion is much more prevalent, not least because a large share of the population is self employed, and institutionally ingrained. He doubts that the current government is better equipped to address the problem than earlier ones. And he fears that Grexit could turn Greece into a failed state.
Also, an open letter (in Greek and German, PDF) by Greek academics (mostly living abroad I presume). They doubt that the current Greek government actually helps to restore the country’s dignity as intended.
John Cochrane does not believe that a Greek default would trigger Grexit.