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Divide Emerges Between IMF and EU Over Failed Greek Austerity Measures

Greek Finance Minister Evangelos Venizelos says talks with lenders to write down Greek debt are going well even after they broke off

ATHENS – Some 21 months after Greece began to impose harsh pay cuts, tax hikes, slashed pensions and scores of thousands of layoffs of public workers in a desperate attempt to keep from defaulting on loans, although it is already technically bankrupt, a schism has developed between international lenders providing rescue loans to keep the country from going under. A report has emerged that the International Monetary Fund, which, along with the European Union and European Central Bank forms the so-called Troika providing Greece with $152 billion in an initial bailout and planning a second for $169 billion, believes that the austerity measures, which created a deep recession of 18.2 percent unemployment without cutting into the country’s staggering $460 billion debt and 10 percent deficit, have failed.
The IMF said that pressure by the EU for a coalition Greek government to keep imposing more sacrifices on Greek workers, pensioners and the poor is doomed because the government will not go after tax evaders costing the country more than $60 billion, nor does it have the will to establish structural reforms needed to make the country more competitive and stave off inevitable collapse. The disagreement broke into the open following an informal IMF press briefing of correspondents in Washington on Feb. 12. Reports from the briefing on Greek television said that the IMF mission staff in the Troika was trying to distance itself from a “counterproductive set of austerity measures” imposed on the country under the insistence of the EU, which wants more such measures to be passed.
That news came even as IMF Managing Director Christine Lagarde, from France, was holding talks with German Chancellor Angela Merkel in Berlin and French President Nicolas Sarkozy in Paris on how to keep Greece from sinking and taking the rest of the 17-nation Eurozone of countries using the euro as a currency with it, a prospect a growing number of analysts say is a certainty no matter how much money the Troika pours into the debt-crunched country. The German newspaper Handelsblattand and other EU newspapers said that the IMF head had warned Merkel and Sarkozy that the parameters of the second bailout package for Greece agreed upon on October 26 had changed. Lagarde reportedly said that, given the deterioration of Greek fiscal and economic data, the new bailout loan should be increased by “tens of billions of euros” from its original $169 billion euro loan target.
The IMF estimated that private bondholders would have to take at least a 50 percent loss on their investments for Greece to stay afloat, although many are balking at the idea, with hedge funds that are betting the country will collapse so they can rake in big profits and were reportedly hoping that the talks would fail so they could take gains, even if Greece goes under and takes the Eurozone and the world economy with it. If enough investors refuse to go along with a voluntary restructuring of Greek debt, that could trigger an involuntary default that would allow speculators to cash in and leave Greece destitute.
A senior IMF source in Washington said that there were “unprecedented delays” in the reforms Greece promised in return for the first bailout, and said the government had wasted time stalling. The source said that “horizontal austerity measures are constantly being adopted that are leading nowhere, while further wage and pension cuts are unjustified because the only way to improve competitiveness is through growth-creating market liberalization, the opening of closed professions and productive investments.” The IMF said Greece should stop imposing across-the-board wage cuts on underpaid workers in the public and private sectors, and instead should go after state-run enterprises such as railroads and energy companies where even people with positions such as drivers and conductors are making upwards of $100,000 a year, more than five times what Greek teachers are paid.
“We have spoken repeatedly about reforms in the labor market to the extent that certain elements in the structure of the Greek state constitute a hindrance to the creation of new jobs,” the IMF sources were quoted as saying, as Athens News reported. “We have said that this leads to rising unemployment and something must therefore be done about it,” the sources added, without including the private sector minimum wage or the summer and Christmas bonuses among the measures that could overcome such bottlenecks.
The senior IMF sources, speaking under condition of anonymity, also said that IMF mission chief in Greece, Poul Thomsen, would probably not join his counterparts from the EU and ECB in a review of Greek books this coming week.  Meanwhile, even as reports emerged that talks over the so-called Private Sector Involvement (PSI) to allow Greece to write down 50 percent of its debt had broken off, Finance Minister Evangelos Venizelos, who has repeatedly given rosy predictions, said everything was fine, although he was the only one saying so. Venizelos, who is hoping to position himself to be the candidate for Prime Minister for the PASOK Socialists, has also imposed waves of big tax hikes on Greek workers while refusing to release a list of 6,000 tax evaders.

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