The World Bank and IMF, at their Spring meeting are urging Greece’s creditors to rethink their policies after studies concluded austerity was strangling any national economic recovery, and that debt forgiveness and write-offs were needed immediately.
All this is in the context of generally gloomier feelings about global growth.
“In many countries the lack of wage growth and greater inequality have created widespread senses that economic growth has mainly been to the benefit of economic elites,” said the IMF’s Chief Economist Maurice Obstfeld.
Even the US was not spared in the downgrade. Its growth forecast was, like more sluggish Europe’s, cut by a fifth of one percent.
Low oil prices continue to hold back energy sector investment and a strong dollar continues to hold back US exports while high unemployment cramps consumption in Europe.
Two major risks may slow Europe further warns the IMF; the refugee crisis and its political pressures on the EU, and Greece’s rising debt mountain, which the IMF says won’t fall under current Troika policies. These insist Greece runs a primary budget surplus of 3.5% of GDP, something the World Bank and IMF say is impossible.
The eurozone crisis is far from over, and if the market should sense cracks in Greek policy, expect traders to exploit then mercilessly.
The view from the IMF
Euronews’ Stefan Grobe spoke with David Lipton, the International Monetary Fund’s First Deputy Managing Director, about global growth, Europe’s many problems, and what to do about debt.
“Where is the US economy at the end of the Obama years and what will be the challenges for the next administration? We are hearing a lot on the campaign trail that the economy is rigged and that the situation is worse than the employment figures suggest. What is your assessment?”
“We consider the economy to be growing comfortably. It’s been growing at about 2.4% and we expect that again in 2016. We consider this to be a solid recovery. Of course, in the future, whoever comes in following President Obama, will inherit a healthy economy, I believe, but faces many long-term challenges. As one is seeing in the presidential campaign, there is a lot of discontent among the US population. The middle class has not been thriving.”
“One challenge that the US economy is not facing is to absorb a tide of Syrian refugees, but it is a major challenge to Europe. It’s a challenge testing labor markets, policy actions and the social fabric of European societies. Is the IMF satisfied with the way the EU is dealing with this crisis economically?”
“I believe that Germany’s lead in this area has been very important. There issues, important issues like border control, burden sharing, remain to be completely settled upon. It’s very important that countries make the most of the inflows. There are some countries where the inflows will actually help overcome adverse economic demographics of falling labor forces. But this will only work if people are welcomed, if they are trained, if they are employed. We have done studies that show that immigration, properly handled, can be a plus for Europe in the long run. And I hope that will turn out to be the case.”
“And finally on Greece – We’ve seen recently a little spat between the IMF and Greece, but also disagreement between the IMF and the EU. What is the latest, can there be a solution without debt relief?”
“We would like to help Greece overcome its problem. That requires them making some further budget adjustments, which has to be done by adopting some further reforms. We also need to see that Greece’s obligations to its creditors are in line with those budgetary goals. Once you set a budgetary goal, that determines how much of the loans you can pay back each year. Right now the existing debt contracts call for higher debt service than even the budgetary positions that are built into last August’s agreements. So in a sense, Europe has one set of agreements, a political agreement with Greece to attain a certain budgetary position, but it also has legal agreements asking to pay more than is called for in their economic agreement. Those two have to be re-aligned.”