14 October 2013

Its a miracle!

The miraculous recoveries of Spain and Greece

with a little bounce off the bottom. 

And even better, the economies are being stabilized. 

and "aren't we lucky the most expensive machine in the hospital" still goes ping

but then it was about saving the machinery, not the patient.  

IMF Documents Excerpts May 9, 2010 meeting at which the IMF board approved Greece’s first bailout. (published in the Wall Street Journal and copied below)
Swiss executive director Rene Weber :  We have “considerable doubts about the feasibility of the program…We have doubts on the growth assumptions, which seem to be overly benign. Even a small negative deviation from the baseline growth projections would make the debt level unsustainable over the longer term…Why has debt restructuring and the involvement of the private sector in the rescue package not been considered so far?”
Brazil’s executive director Paulo Nogueira Batista :  “The risks of the program are immense…As it stands, the programs risks substituting private for official financing. In other and starker words, it may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders, mainly European financial institutions.”
“Our decision to go along with this problematic and risk-laden program should not be taken to mean that we will support it in the future. Going forward, we will consult with our authorities and other chairs to make sure that the fund is not led along the path of endorsing a program that may prove to be ill conceived and ultimately unsustainable.”
Argentina’s executive director Pablo Andrés Pereira : “The alternative of a voluntary debt restructuring should have been on the table…The European authorities would have been well advised to come up with an orderly debt restructuring process. The bottom line is that the approved strategy would only have a marginal impact on Greece’s solvency problems…It is very likely that Greece might end up worse off after implementing this program.”
Iranian executive director, Jafar Mojarrad : “We would be interested in staff clarification regarding the option of debt restructuring. We would have expected such an option to be discussed in the staff report, even if the intention were not to retain it.”
Egyptian director Shakour Shaalan : “We would be grateful for further elaboration on the assumptions…underlying staff’s medium-term growth projections. They appear to us to be rather optimistic…We would be interested to learn from staff whether debt restructuring was among the options considered in the assistance package. Debt restructuring may be looked upon disfavorably, but it should be envisaged.”
India’s executive director Arvind Virmani : “The scale of the fiscal reduction without any monetary policy offset is unprecedented…(It) is a mammoth burden that the economy could hardly bear. Even if, arguably, the program is successfully implemented, it could trigger a deflationary spiral of falling prices, falling employment, and falling fiscal revenues that could eventually undermine the program itself. In this context, it is also necessary to ask if the magnitude of adjustment…is building in risk of program failure and consequent payment standstill…There is concern that default/restructuring is inevitable.”
China executive director He Jianxiong : “The risks to the program are significant…The growth projection appears optimistic.”
 Also from the minutes of the May 9, 2010 board meeting on the Greek bailout:
“The exceptionally high risks of the program were recognized by staff itself, in particular in its assessment of debt sustainability.”
“... according to the Brazilian ED, ‘a bailout of Greece’s private sector bondholders, mainly European financial institutions.’ 
The Argentine ED was very critical at the program, as it seems to replicate the mistakes (i.e., unsustainable fiscal tightening) made in the run up to the Argentina’s crisis of 2001. 
Much to the ‘surprise’ of the other European EDs, the Swiss ED forcefully echoed the above concerns about the lack of debt restructuring in the program, and pointed to the need for resuming the discussions on a Sovereign Debt Restructuring Mechanism.”
The Swiss ED (supported by Australia, Brazil, Iran) noted that staff had ‘silently’ changed in the paper (i.e., without a prior approval by the board) the criterion No.2 of the exceptional access policy, by extending it to cases where there is a ‘high risk of international systemic spillover effects.’”
Christine Lagarde, IMF Managing Director, in June 2013:
“In May 2010, we knew that Greece needed a bailout, but not that it would require debt restructuring…We had no clue that the overall economic situation was going to deteriorate as quickly as it did.”
And where's that "Le Grand European Investment plan"?

And that super big recovery? ... Remember the medicine.

Got the picture?
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  1. Hmmm...

    Christine Lagarde, IMF Managing Director, in June 2013:

    “In May 2010, we knew that Greece needed a bailout, but not that it would require debt restructuring…We had no clue that the overall economic situation was going to deteriorate as quickly as it did.”

    Ms Lagarde is doubtless as deaf to other voices now as she was back in May 2010, when there were clearly expressed concerns about debt being passed from one sector to another.

    In a timely anecdote from May 2010 Shaun Richards wrote this:

    "My old tutor from my undergraduate days at the LSE (Willem Buiter) has taken this logic a step further and now concludes that there is already a plan for restructuring of Greek debt but not until 2011 when the debt has been transferred from the banks to other places including the taxpayer. I do not necessarily completely agree with this view but it is hard to discount entirely. If true it is a deeply cynical position from Europe’s politicians."

    This was not an isolated view, as I recall.

  2. Sorry... forgot to add link.


    Nice piece, btw!

  3. Thanks.

    With respect Christine Lagarde saying "we had no clue" :

    "Unfortunately, although the answer was indeed clear, simple, and straightforward, there is some difficulty in justifiably assigning to it the fourth of the epithets you applied to the statement, inasmuch as the precise correlation between the information you communicated and the facts, insofar as they can be determined and demonstrated, is such as to cause epistemological problems, of sufficient magnitude as to lay upon the logical and semantic resources of the English language a heavier burden than they can reasonably be expected to bear." Sir Humphrey (Yes Minister, Entangled Web)

    Back 2010 I was thinking along the same lines as Willem Buiter, hence I started this blog. The "further comment" section, in Shaun Richards's May 2010 post. was correct. Definitely not an isolated view, but one that was not covered in the media.