Greek crisis: US 'could have forced a haircut,' says former IMF deputy director for Europe
“The fundamental reason why the Greek crisis lasted so long was the extreme level of austerity that was imposed.” That is the verdict of Ashoka Mody, visiting professor in International Economic Policy at Princeton University, a former deputy director of the IMF’s European Department and one of the most eloquent critics of the policies of the troika in Greece and elsewhere.
What should the IMF have done?
“It should have insisted, it should have made the restructuring a condition of its participation,” Mody said, mentioning that the staff report all but admitted the debt was unsustainable and that Dominique Strauss-Kahn later said he was in favor of debt relief.
“The reason it didn’t happen was the ideological opposition of the European Central Bank – in this case supported by the US Treasury. Strauss-Kahn did not want to offend either the Americans or the Europeans.”
“The stance of the US Treasury was critical – if its representative on the Executive Board had come out in favor of a restructuring, it would have happened. Instead, it sided completely with the European viewpoint – the Treasury secretary, Tim Geithner, believed that there should never be a restructuring in the midst of a crisis.”
Mody is also critical of the reform mix: “A lot of the measures were about weakening labor. Here, too, there were many IMF studies showing what a terrible idea it is to cut wages during a recession. These, too, were ignored.”
At: http://www.ekathimerini.com/232253/article/ekathimerini/business/us-could-have-forced-a-haircut-says-former-imf-deputy-director-for-europe
Prof. Ashoka Mody, former deputy director of the International Monetary Fund’s European Department:
European Central Bank and U.S. Treasury opposition to debt restructuring under any circumstances prolonged the Greek crisis for nearly a decade, leading to depression and much lower long-term prospects for Greece.
Debt restructuring (2005) was highly successful in Argentina - but was sabotaged in 2014 by vulture fund lawsuits and a hostile (possibly bribed) Wall Street judge.
