The IMF – more specifically, its chief economist, Maurice Obstfeld – has publicly criticised the austerity targets set for the ESM bailout programme, compliance with which is being demanded by Greece’s European creditors. The main focus of criticism is on what the IMF considers to be the one-sided way in which programme requirements are skewed towards fiscal factors. Within the framework of the ESM bailout programme that was negotiated between the European states and Greece in the summer of last year without the participation of the IMF, it was agreed that the Hellenic Republic would implement extensive retrenchment measures aimed at boosting the primary fiscal surplus to 3.5% of GDP by 2018.
More concretely, the IMF has voiced doubts about whether the agreed-on austerity and reform requirements are conducive to fulfilling the retrenchment target in the first place. Contrary to the frequent claim that Greece should engage in more consolidation in order to be able to hit its fiscal targets, the IMF is more in favour of raising spending and cutting taxes with the objective of supporting growth, Mr. Obstfeld claims. The IMF above all regards the austerity measures imposed at the expense of investment as a mistake.
With this statement, the IMF is underscoring its opposition to the EU’s stance. A number of European countries are actually demanding that Greece achieve a primary fiscal surplus corresponding to 3.5% of GDP for the next ten years to come.
The third party to the conflict is Greece itself. The Hellenic Republic’s position is that the primary-fiscal-surplus targets should be loosened, but above all not enforced for a long period of time, and conversely that the country should not be compelled to make cuts in politically sensitive domains such as the pension system.
For its part, the government in Athens is under pressure to succeed. Its parliamentary majority has been whittled down to just three. What Tsipras is mainly pressing for is that the second review of the ESM programme – which is considered to be a necessary (if not necessarily sufficient) precondition for the ECB to include Greece in its PSPP asset-purchase scheme – be successfully concluded soon.
In a bid to get the country’s creditors to show greater responsiveness as well as to encourage the IMF to participate in the bailout programme, the Greek premier is now threatening to have elections called ahead of time, with new elections being generally viewed as a threat to the success of the ESM rescue scheme. Other EU member states immediately issued warnings to the effect that Greece should not use a new-election scenario as a political lever, adding that they refuse to be blackmailed.