The Third Memorandum is Unsustainable just like the previous two

By Truth Committee on the Greek Public Debt

1 October 2015 by Truth Committee on the Greek Public Debt

We observe again the same assumption which underlay the two previous MoU and which has been proven wrong: a strong fiscal restraint is compatible with a recovery in growth.

1. The political economy of the third MoU

The main scenario of the Third Memorandum of Understanding [1] (MoU) is summarized in the following table:

Table 1: Primary surplus targets and GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
growth path underpinning the third financial assistance programme

YearPrimary surplus targetGDP growth
2015 -0.25% -2.3%
2016 +0.50% -1.3%
2017 +1.75% +2.7%
2018 +3.50% +3.1%

Source: Jeroen Dijsselbloem [2]

We observe again the same assumption which underlay the two previous MoU and which has been proven wrong: a strong fiscal restraint is compatible with a recovery in growth.

The Eurogroup President Jeroen Dijsselbloem argues that this is possible:

“The MoU foresees to achieve the primary surplus targets with the following measures:
- Pension’s savings of around 0.25% of GDP in 2015 and 1.0% of GDP by 2016 (see pp. 13-14 of the MoU);
- Various measures in the health care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. sector (pp. 15-16 of the MoU);
- Tax, revenue, and financial management reforms, including various measures against tax fraud and evasion. A minimum VAT income of EUR 2.65 billion is to be ensured. Property tax rate will be aligned with market prices from 2017 and zonal property values are to be revised. The authorities are to improve the collection of tax debt arrears and introduce independent agencies and make the Fiscal Council independent and operational. Many other tax related reform measures are included in the MoU (pp. 6-11 of the MoU).
- In addition, Greece is requested to enact structural measures by October 2015, which are expected to yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. at least 0.75% of GDP coming into effect in 2017 and 0.25% of GDP coming into effect in 2018 so as to help achieving the medium-term budgetary targets”

2. A blind belief in structural reforms

The second assumption is that structural reforms can by themselves boost the growth potential [3]. Additionally past failures are seen to be the outcome of only incomplete implementation of these reforms. For instance, 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.
argues: “the significant shortfalls in program implementation during the last year led to a significant increase in the financing need”. But the reforms have actually been implemented in Greece, as the IMF itself recognizes in a document assessing the previous MoU [4].

Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.
finds that: “Impressive progress has been achieved in reforming labour and product markets since the beginning of the crisis, albeit from a low starting point. Since 2009-10, Greece has the highest OECD rate of responsiveness to structural reforms recommended [5]” In June 2013 [6], the IMF congratulates Greece for its pension reform, “one of the main achievements of the program”.

An IMF document [7] did not hesitate to affirm that: “The simulated effects of reforms are in line with developments in the Greek economy” and that: “The results are also consistent with long-term projected growth under the program ».

But in reality, Greece has been plunged into a deep recession, eventhough, or indeed precisely because it has strictly applied the structural reforms recommended and imposed by 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.

, at the cost of a dramatic social crisis.

Based on the current evidence there is no reason to consider that the new structural reforms to come could have another outcome.

3. “Greece’s debt has become unsustainable”

Christine Lagarde, the IMF Managing Director [8] has recently declared:

“However, I remain firmly of the view that Greece’s debt has become unsustainable and that Greece cannot restore debt sustainability solely through actions on its own.”

This statement is based on a recent IMF document [9] which says that “Greece’s public debt has become highly unsustainable [and] is expected to peak at close to 200 percent of GDP in the next two years, provided that there is an early agreement on a program. Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.”


The third MoU is based on the same hypotheses and postulates as the first two previous MoU. Therefore it is destined to fail, leaving the debt unsustainable.


[1Memorandum Of Understanding Between The European Commission Acting On Behalf Of The European Stability Mechanism And The Hellenic Republic And The Bank Of Greece, 19 August 2015,

[2Jeroen Dijsselbloem,“Exchange of views with the President of the Eurogroup on Greece”,European Parliament, 22 September 2015,

[3Michel Husson, “Greece: Structural reforms, multipliers, competitiveness”, Note for the Truth Committee on Public Debt, April 2015,

[4IMF, “Greece. Ex post Evaluation of Exceptional Access Under the 2010 Stand-by Arrangement”, June 2013, p.44,.

[5OECD, Economic Survey. Greece, OECD, November 2013.

[6“Ex post Evaluation of Exceptional Access Under the 2010 Stand-by Arrangement”, June 2013,

[7“Greece. Selected issues”, May 2013,

[8“Statement by Christine Lagarde on Greece”, IMF Press Release No. 15/381, August 14, 2015,

[9“An update of IMF staff’s preliminary public debt sustainability analysis”, IMF, Greece Country Report No. 15/186, July 14, 2015,

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