The Awful Press Coverage of Lew and Lagarde That Fueled Delusion Wednesday

By Nathan Tankus, a writer from New York City. Follow him on Twitter at @NathanTankus

Part of the difficulty of writing in detail about the Greek crisis is how awful the reporting is. Headlines often say misleading or outright lies, backed up by articles that are usually somewhat less misleading but require strong parsing to decode. Further commentary from non-reporters or advocates tends to be based on layers and layers of misreporting (supported in no small part by wishful thinking). This is why it has been important to read proposals from the Greek government and the Creditors in full as well as statements from important figures in full. For example, a month ago Yves noted that both the media and the Greek negotiators missed an important statement in the creditor proposal suggesting that pension spending cuts (the political red line for both sides) could be offset to a certain extent with a targeted welfare system. Now maybe this was a cheap trick and they wouldn’t follow through on it if the proposal made the final deal but it wasn’t even acknowledged or capitalized on by anyone politically. I bring this up not to retread this ground, but to dig into another example of media failure from Wednesday: the widely reported story that Statements from Treasury Secretary Jacob Lew and IMF managing director Christine Lagarde signaled rising American pressure on Europe.

It is difficult to tell where framing such as this emerges, so I am going to focus on two centers of elite opinion: the New York Times and the Financial Times. The New York Times headline stated “Lew and Lagarde Urge Debt Relief for Greece”. Note the use of the verb “urge” to add drama to their statements. It is also important to point out that this being reported as a joint statement (whether implicitly or explicitly). As I’ll discuss below, these statements had nothing to do with each other. On the other side of the Atlantic, the Financial Times headline was “Lew and Lagarde raise pressure on EU to avoid Grexit”. This statement is even more amazing because not only does it repeat the tenor of the New York Times headlines it invents the reason for this supposed “pressure” whole cloth.

The NYT opens the story with this lede:

The calls for debt relief for Greece are growing louder, and not just from Athens.

Jacob J. Lew, the United States Treasury secretary, and Christine Lagarde, the head of the International Monetary Fund, have again urged Europe to grant meaningful debt relief to Greece as part of finding a lasting solution to the crisis there.

There are three major ideological claims made just in these two sentences:

A) These two twin statements make the call for debt relief “louder” and aren’t perfunctory repeats of longstanding positions;

B) Europe has and is not considering debt relief as part of a Greek bailout;

C) These statements are related and whatever statement they made, this was the primary purpose.

Similar ideological claims come from the beginning of the FT article:

In separate interventions in Washington both said it was clear that Greece was in need of a “debt restructuring” in an implicit call for Germany and others to drop their opposition to any forgiveness of Greek debts.

This explicitly says that the United States is pushing “Germany and others” to drop their opposition to debt restructuring. Only 10 paragraphs down does the FT acknowledge that:

Both sides in the referendum had seized on the report to their own ends, she pointed out, and it had simply enumerated what had been a longstanding IMF call for Greece’s debts to be restructured.“Our analysis has not changed,” she said.

To restate the case, according to the NYT and the FT: the United States and the IMF are raising pressure on Germany and the rest of the Eurozone countries to agree to debt restructuring. These countries in turn have been completely against debt restructuring but this new pressure may turn the tide. The question is, is any of this true? I think not. Lets find out by looking at the talks themselves. First up, Lagarde:

There are clearly significant and rapid developments and the IMF has been adopting a line of, not silence, but we try to be mindful of developments and not be excessive in our positions… whenever the IMF is involved it is certainly my view that the IMF has to follow its rules, should not bend the rules and should always be evenhanded, there cannot be any special treatment. The third point I would like to make is that our loans are conditional upon various requirements but all of them aim to restoring stability, restoring growth and debt sustainability. Now in the context of Greece we have always advised that that program walk on two legs if you will.

One leg is about significant reforms and fiscal consolidation as we have advised in the case of Ireland, Portugal, Cyprus and outside the Eurozone: Latvia, Iceland and it has worked and the other leg is debt restructuring which we believe is needed in the particular case of Greece for it to have debt sustainability. That analysis has not changed. It may well be that numbers will have to be revisited but our analysis has not changed. What has changed is clearly that Greece is in a situation of acute crisis which needs to be addressed seriously and promptly. Greece is now in arrears vis-à-vis the fund and the Greek people have rejected by their referendum response the latest proposal that was made by the institutions and the Europeans.

The tenor of this conversation is completely different. In fact the biggest new news in this statement is that the IMF will not “bend the rules” for Greece and won’t get any “special treatment”. Sputnik, the Russian government owned news media outlet, had the only story I could find that differed from the western media line. Its headline read “Lagarde: IMF to refrain from bending rules for Greece” which is clearly more reasonable. Sputnik also quoted Lagarde much more extensively then any of the other news outlets. To be clear then, the “debt restructuring” they’re calling for is for the European institutions to give them debt write-offs. The IMF must get paid under all circumstances. The proposal from the Eurogroup that is being pushed through Greek parliament as we speak demands that next Monday both the IMF payment and the arrears payment be made.

Think I figured why #Greece needs €7bn by Mon: €3.5bn @ECB bond, €0.6bn interest on that bond; €1.5bn #IMF arrears, €1.6bn owed IMF in July

— Peter Spiegel (@SpiegelPeter) July 13, 2015

It can’t be over-emphasized that Lagarde also reaffirms that austerity and structural reforms is a policy combination that works and has worked in every other country they’ve implemented it in Europe. This should be obvious that this has been the “party” line for decades. The idea that this statement is some big break from longstanding American or IMF positions is baffling. As we’ll see below Lew’s statement mostly echoes the IMF official line.

[begins 54:30] I have continued to believe that it is in the best interest of all parties to find a resolution. Greece needs to have a path towards a sustainable debt path and towards a growth path in their future and a good agreement would give them a better shot at that. I think it is a mistake for the European economy, the global economy, to take the risks that are involved with an uncontrolled crisis in Greece. That’s different from saying there is an immediate impact. You know if you look at the differences between Greece and the European partners and the institutions. before things broke down and they went to a referendum, they were within a couple billions of euros of closing the gap. There’s 100s of billions of risk and a couple billion of space. For any of us who participated in budget and fiscal policy discussions, you wouldn’t usually buy 100 billions of dollars of risk for a couple billion dollar gap. I believe there’s still a solution available here. It’s not entirely clear, as anyone following the situation knows, that they will find that solution. I think it’s very important in terms of the economics and geopolitical stability of Europe, but it’s something that Europe will have to do, they have to solve it. We have been very much engaged, offering our advice and trying to help the parties understand the option they have

Later on Lew says:

[begins 59:05] …[A]lso the level of trust. I think that in the next few days what we’ll see is can the parties come together and build enough trust [so] that Greece will take the actions that it needs to take so that Europe will restructure the debt in a way that is more sustainable and can you time those things so they happen so that in the kind of political realities of both Greece and Europe, these actions can be taken simultaneously.

Lew’s analysis is similar to Lagarde’s. He emphasizes that not doing a deal will be economically costly to Europe (but not to the United States) and doesn’t make much strictly economic sense since before the referendum they were only a “couple billion” euros apart. However this is purely a regional concern. He peppers his comments with phrases like “we’ll see”, “it’s not entirely clear… whether they will find a solution” and “it’s something that Europe will have to do”. He comments in an earlier section that he essentially follows the IMF positions on this and emphasizes that continuity in their positions. It should also be obvious from these videos that the venues of these talks are different despite them both being housed in the Brookings Institution. Additionally, they emerge from previously agreed speaking engagements, not from any desire to intervene significantly in European politics.

We can see very clearly from all these statements that Europe, the IMF and the United States all continue to agree that more structural reform and austerity need to happen in Greece. But what about debt restructuring, aren’t they pushing Europe on this? Not really. It has almost always been the Troika’s position that debt relief and restructuring should be part of a deal with Greece. Maturity extensions and payment deferrals have already happened extensively, it’s just face value write-downs that have been balked at (which you’ll notice were never mentioned by either person). Further, the Troika committed to debt relief nearly three years ago in writing and reneged. Note though that their excuse for reneging was that the “debt was sustainable”. Now that this has been acknowledged as a farce the IMF reaffirmed this analysis of debt restructuring some time ago. Since then it has been widely expected, and certainly was widely expected at the time of these statements, that Greece would get debt relief. Lew explicitly acknowledges this point in his remarks: “Greece will take the actions that it needs to take so that Europe will restructure the debt in a way that is more sustainable”.

So if these statements are very different from how they’ve been represented in the media, why were they reported this way so uniformly in western English press? Frankly, this has the fingerprints of the Obama administration all over it. As Yves has said: “Obama has long believed that the solution to any problem is better propaganda”. To those who are not intimately familiar with the details of the negotiations between Greece and their creditors, these articles and headlines read like Obama is on the side of beleaguered Greece. This is politically important because what is going on is fundamentally nasty and it will be basically impossible to get our media sources to report otherwise. Thus Obama must distance himself from the current situation as much as possible for domestic consumption. In reality, the sentiment of Lew and Lagarde that was expressed in these perfunctory, unconnected statements is that a deal should be done as fast as possible, but not that policy content of any final deal should be changed.

These statements are at best ambivalent about Greek suffering. I’m sure that given the choice, the United States would choose no Grexit over a Grexit. However, I also think they aren’t willing to expend much political or economic capital preventing such an outcome. Make no mistake, the United States could put very significant pressure on European governments to get a favorable deal if it so chose. The only practical details of American involvement that have been published in any media outlet have been from Ambrose Evans-Pritchard claiming that French and American officials are coordinating efforts. Note however, the only noticeable impact of this has been on the Greek side where “Paris has dispatched a team of technocrats to help finance minister Euclid Tsakalotos draft the new proposal in an effort to ensure it is as convincing as can possibly be”. In other words, the only possible American influence has largely resulted in more efficient and speedy capitulation from the government of Greece.

I encourage readers to watch the videos provided (which no other media outlet linked to), read the reporting of those statements and judge for yourself whether these headlines remotely describe their content. A large part of what makes Yves successful is her ability to parse the sources of elite opinion and see the truth very far between the lines. It’s a skill that takes effort, time, and critical thinking and our citizenry will be better for it.