Memorandum between Greece and the Troika: from democracy to external diktat

20 August 2015 by Tiago Stichelmans

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The third programme between Greece and its creditors fails to promote local ownership. It is therefore difficult to see how it will succeed where its predecessors have failed.

On Friday, 14 August, Eurozone finance ministers approved the Memorandum of Understanding (MoU) between Greece and the European Stability Mechanism ESM
European Stability Mechanism
The European Stability Mechanism is a European entity for managing the financial crisis in the Eurozone. In 2012, it replaced the European Financial Stability Facility and the European Financial Stabilisation Mechanism, which had been implemented in response to the public-debt crisis in the Eurozone. It concerns only EU member States that are part of the Eurozone. If there is a threat to the stability of the Eurozone, this European financial institution is supposed to grant financial ‘assistance’ (loans) to a country or countries in difficulty. There are strict conditions to this assistance.
(ESM). This MoU shapes a three-year long bailout of 86 billion euros for Greece. In exchange for this bailout, Greek authorities have to comply with a set of extraordinarily detailed conditions.

The Memorandum states that “success requires ownership of the reform agenda programme by the Greek authorities”. The document asks Greece to develop a growth strategy that is “Greek-owned and Greek-led”. This is astonishing considering that the conditions included in the Memorandum are worse than the ones that were rejected by the Greeks in the referendum on 5 July. The remarkably long list of prior actions and key deliverables - prior actions are measures that a government agrees to take before the financing is approved or the review of a programme is completed - included in the Memorandum are also in their vast majority in contradiction with the platform adopted by Syriza in Thessaloniki, creating a rift within the party. For example, Syriza was elected under the promise to abolish the unified property tax (ENFIA) that doesn’t take into consideration the level of income, and replace it with a tax on large property. However, the Memorandum rejects this approach and lists the launch of the 2015 ENFIA exercise as a prior action. We must therefore interpret the ‘ownership’ principle included in the Memorandum as a way for the Troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

to force the Greek government to take responsibility and own the measures included in the document.

A number of conditions included in the Memorandum demonstrate the micro-management of Greece by its creditors. This approach has previously been criticised by the IMF itself in a conditionality review. The IMF Guidelines on Conditionality state that the “conditions should be limited to the minimum necessary to achieve the goals of the Fund-supported program [which are] to solve the member’s balance of payments Balance of payments A country’s balance of current payments is the result of its commercial transactions (i.e. imported and exported goods and services) and its financial exchanges with foreign countries. The balance of payments is a measure of the financial position of a country vis-à-vis the rest of the world. A country with a surplus in its current payments is a lending country for the rest of the world. On the other hand, if a country’s balance is in the red, that country will have to turn to the international lenders to meet its funding needs. problems”. The ESM should therefore let the Greek authorities decide how the macroeconomic targets will be pursued, leaving them the necessary policy space and ownership to do this. Imposing a unified property tax or a reform of the VAT on Greek islands is in complete contradiction with the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
’s guidelines and does not build on the lessons learnt.

It is difficult to imagine how the Greek government will be able to design and implement an economic strategy of its own given the extraordinarily long list of conditions (prior actions and key deliverables) and most importantly how these conditions will reform vast sectors of the economy. To give just a few examples, the Memorandum asks the Greek authorities to abolish the refund of tax on diesel and oil for farmers (despite the fact that agriculture may be an engine of future growth), to eliminate VAT discount on Greek islands (despite the existence of such discounts for islands in other EU member states, the particularly difficult conditions of the population living there during the winter and the impact that this may have on the main Greek export: tourism) and to transfer valuable assets to an independent fund (in reality controlled by the Troika) that will be in charge of their privatisation (meaning that Greek authorities will lose the capacity to use Greek assets according to their priorities).

In addition to the conditions put on the Greek authorities in exchange for the bailout, the Memorandum organises relations between Greek authorities and the Troika in such a manner that it is difficult to see how they will own any future reform. The document asks the Greek government to commit to “consult and agree” with the Institutions of the Troika (European Commission, European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

and the International Monetary Fund) on all actions relevant to the objectives of the Memorandum, before their adoption. We should note that in the two previous Memoranda, the Greek government committed to “consult” with the institutions of the Troika rather than “consult and agree”.
The large number of reforms demanded of the Greek authorities was already a feature of previous programmes. Eurodad’s report on IMF conditionalities, published in 2014, highlighted that the Greek programme at the time had a number of conditions (41) far above average (19.5 conditions per programme).

For the IMF, the imposition of economic reforms in exchange for financial support is not a new issue. However, the experience of developing countries (where financial aid from the IMF usually takes place) should alert us to the problems posed by the lack of ownership on economic reforms. The lack of effectiveness of economic conditionalities has even been recognised by the World Bank, which states that “compliance has been low for policies for which there was no sense of ownership, for politically difficult reforms, or reforms required to be implemented in sensitive political periods”.

Overall, by imposing Greek authorities’ ownership on the measures included in the Memorandum, the Troika made sure that Syriza will no longer be able to claim that it represents a political alternative as it will now be part of the system by implementing those measures. It is very questionable that reforms imposed by foreign institutions have any chance of being successfully implemented and bringing much desired economic growth to Greece. Without economic growth, and considering that European creditors have so far rejected debt reduction, it is difficult to see how this third program will reach what previous ones have failed to do: help Greece to get back to debt sustainability.

Source : Eurodad



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