By Nathan Tankus, a writer from New York City. Follow him on Twitter at @NathanTankus
The endless march of misreporting on the IMF and Lagarde’s statements continues. An added wrinkle is that her latest statement was made on a french news service Europe1, making it more difficult (at least for me) to check up on what she really said. Luckily IsabelPS is a reader as well as a great translator. Before we get to what she actually said, lets go to how Lagarde’s statements have been reported. The FT headline was “IMF’s Lagarde: Greek plan not viable”. If this headline was accurate this would mean that the current deal being offered to Greece was “not viable” in Lagarde’s eyes. A “non-viable” deal would presumably be a deal the IMF can’t be involved in. Another implication of this headline is that the IMF, as an organization, is threatening to destroy the current deal. The lede goes on to say:
The head of the International Monetary Fund said Eurozone creditors’ plan for Greece is “categorically” not viable without a reduction in debt. Speaking on France’s Europe1 Radio from Washington, Christine Lagarde reiterated that Greece needs debt relief. She wouldn’t say what amount of relief Greece would need, but said the current plan isn’t viable.
This walks back the headline somewhat because it makes clear that she was not speaking of the “current” deal but about a hypothetical deal that didn’t include “a reduction in debt”. As always, lets check up on what Lagarde actually said in context. IsabelPS introduces her statement this way:
She is asked if the thinks that the plan that is being devised is possible without debt relief and she answers:
“The answer is quite categorically no. I think that is the reason why the European partners [agreed] totally [to] the principle of debt relief at the end of that document that was signed in the early hours of monday that states the principle of debt relief without, of course, stating neither the amount nor the way to go about it, but the principle is non disputable…
For us to participate it is necessary on one side that there is a complete program and, in our view, the complete program must stand on two legs: the greek leg that consists in reforming deeply the economy in order to liberate it, to give it a capacity for growth and consists in keeping a sound fiscal line to give solidity to the country without being excessive; the second leg is the lenders’ leg, that consists on one side to give financing and on the other side to restructure the debt to make its burden lighter. For us, for the IMF, this should be an ensemble [possibly different word] in order to be successful. You see, it’s not a caprice, it’s not the IMF meddling in affairs, it’s the rules that are applied to all countries that are members of the IMF because, in reality, they lend to each others and it’s in this spirit that there are rules with the purpose of allowing countries to return to a stable economic situation, namely, to finance themselves on their own in the financial markets.
Here two things jump out. First, the questioner really was asking about a hypothetical version of the plan, not the plan itself. Second she is not threatening the current deal in any way. She sees the “European partners” as agreeing with “the principle of debt relief” where the negotiations will just be over how much and how exactly it happens. Recall that not reducing the face value of the debts but compressing interest rates, extending maturities and deferring payments all de facto accomplish the same thing. They want this of course because it allows them to delay the recognition of losses.
Another important aspect is something she reiterates from earlier talks that they want to introduce a program that “consists in reforming deeply the economy in order to liberate it, to give it a capacity for growth”. This economic quackery gives her a window to save face by declaring victory with vastly insufficient debt relief since the dizzying array of reforms will supposedly create growth, reducing the amount of debt relief needed. If this growth doesn’t materialize she can say they didn’t do enough reforms, just as she explained the lack of growth in the last 18 months.
The “principle” of debt relief has indeed been widely acknowledged. Confusion has resulted from the negotiations where Syriza demanded that debt restructuring be a part of structural reform discussions. As with much of Syriza negotiating tactics, this makes economic sense but misunderstood their political position in negotiations. Debt restructuring is and was meant to be the piece meal reward for the Greek government completely submitting itself to the Troika and the rest of Europe. Masters are often generous to their most obedient serfs, peons or slaves. See for example ECB President Mario Draghi’s statement that:
I believe that by and large that programme has these features. And finally, there is another issue that has been widely discussed: is debt relief necessary? It’s uncontroversial that debt relief is necessary, and I think that nobody has ever disputed that. The issue is: what is the best form of debt relief within our framework, within our legal, institutional framework? I think we should focus on this point in the coming weeks.
Thus Lagarde and consequently the IMF is not a threat to the deal as long as there is even the most pro forma of debt relief (again through measures that preserve the face value of the debt). If debt restructuring is indeed a deal breaker for Lagarde it is likely that she has already gotten commitments for whatever amount of debt restructuring she deems acceptable for the IMF. Shauble would have certainly raised a huge stink if he thought there was a chance the IMF would sink the deal which he did not. Additionally the Bundestag (as well as other eurozone parliaments), voted in favor of reopening negotiations. In addition to the above statement from Draghi (which is likely very informed by high level discussions including directly with lagarde) Donald Tusk told Peter Spiegel explicitly that “my impression was absolutely unambiguous that Lagarde is ready to participate in this programme, and it was indisputable in fact”
— Peter Spiegel (@SpiegelPeter) July 17, 2015
Thus as I said at the end of the last piece:
If Lagarde wanted to wash her hands of Greece or attempt to coerce Europe into more “generous” debt restructuring measures she would have been saying that explicitly and loudly. Until there is a headline that says “Lagarde says no IMF money will be dispersed without extensive debt restructuring” read reporting on IMF “motivations” and “warnings” with extreme skepticism. If this does ultimately prove true, it will become clear well after the current round of deals are already done and thus be no help to Greece at all.
Her using the phrase “not viable” in the context of a hypothetical deal without explicitly saying the IMF would not be involved without debt relief (and specifically a “large” amount) does not constitute that headline. I would suggest readers not hold their breath waiting for it.