The announcement of a referendum to decide on Greek austerity measures met with some
enthusiasm
“Obviously in times of difficult structural adjustment, major fiscal austerity and tough decisions such as the Greek government is considering, it is important there is widespread support, democratic support, for such measures…"
Bank of Canada Governor Mark Carney
Others were less
impressed
Le geste des Grecs est irrationnel et de leur point de vue dangereux (The gesture of the Greeks is irrational and their point of view dangerous)
President of the French Republic, Nicolas Sarkozy
The markets won, democracy was abandoned and a
technocrat was installed to lead Greece.
Former European Central Bank vice-president Lucas Papademos has been named as Greece's new prime minister...Mr Papademos, who is not a member of parliament, will head an interim government until elections can take place in February.
Mr Papademos enjoys wide
support
"He is a man of quality and ethics; extremely educated. He is designed to save Greece."
The austerity measures have been imposed by the European Commission, the IMF and ECB (aka
the Troika). There are many who would argue that
the Troika have had a poor record as evidenced by the
Euro
an ill-designed single currency interacting with an insupportable burden of private debt created by oversized, undercapitalised banks.
and
the “technocrats” have consistently ignored their own economic models in favor of what amount to political prejudices, calling for fiscal austerity and higher interest rates when their own analyses say that unemployment will be high and inflation subdued.
The IMF and other agents tried to push their agenda in Argentina, with mixed results. As the
IMF recalls
With the economy operating above potential in the first half of 1998, the initial downturn occurred as consumer confidence was sapped by external financial shocks and domestic political uncertainties, compounded by tighter monetary conditions and trade related shocks; thereafter, the structural weaknesses came into play...once the depression was under way, there was no easy way out, as the authorities had no policy instruments that could have enabled them to stimulate the economy without compromising debt sustainability.
Once the austerity measures were implemented recession and depression became inevitable
The occurrence and severity of the Argentine crisis has, as mentioned, been particularly disturbing to the Fund given its extensive engagement for many years beforehand
The problem then becomes an academic argument within the IMF
The Argentine experience also highlights the fact that, while ownership of policies is important, it is not sufficient to guarantee their viability. Arguably, in Argentina there was strong ownership for an inconsistent set of policies—with wide popular support in particular for the currency board but not for the fiscal policies needed to support it. Ensuring that policies are both nationally owned and viable is a very complex challenge that the Fund and the country authorities need to face.
and
Washington
Given the political orientation that is predominant in key international players, overcoming the conventional views may be one of the main obstacles to a lasting solution for the crisis.
The Crisis That Was Not Prevented: Argentina, the IMF, and Globalisation
In defending the IMF from criticism by ex World Banker Joseph Stiglitz,
Thomas C. Dawson admits to an inconsistency
Stiglitz accuses the IMF of being driven by a belief in the perfection of markets and the imperfection of governments. The accusation is simply wrong. IMF staff are well aware that they owe their jobs to the imperfections of markets.
What is probably true is that the staff of the IMF (and the World Bank) have over time become more confident about the ability to use markets to serve the public interest. What caused this shift? Quite simply, the evidence. Through the 1980s, central planning represented an important alternative to markets as a way of organizing economies. The collapse of the Soviet Union and the fall of the Berlin Wall suggested to many that markets, whatever their faults, were a more durable way of organizing a country's economy. This feeling was reinforced by the good economic performance of the United States and the United Kingdom, both of which had moved to more market-oriented systems during the 1980s.
Importantly this speech was made in 2002, well before the collapse of the market orientated systems. Today it is the non democratic authoritarian economies of China and Russia that have prospered leaving the IMF to demand austerity in exchange for cash from established democracies.
