The Troika’s Policy in Greece: Rob the Greek people and give the money to private banks, the ECB, the IMF and the dominant States of the Eurozone
On 20 August 2018, the Greek government of Alexis Tsipras, the IMF and the European leaders celebrated the end of the Third Memorandum.
On this occasion, the major media and those in power spread the following message: Greece has regained its freedom, its economy is improving, unemployment is on the decline, Europe has lent Greece 300 billion and the Greeks will have to start repaying that debt in 2022 or in 2032.
The main claims are completely unfounded as Greece remains under the control of its creditors. In compliance with the accords that the Alexis Tsipras government signed, the country must imperatively achieve a primary budgetary surplus of 3.5% which will force it to continue brutal policies of reduction of public spending in the social sector and in investment. Contrary to the dominant message that Greece will not begin to repay its debt until some time in the future, it should be clearly understood that Greece has been repaying considerable amounts constantly all along to the ECB, the IMF and to private creditors, and this prevents it from responding to the needs of its population.
by Eric Toussaint
Part 3 - The principal risk came from the indebtedness of the Greek private sector, especially banks
It is noteworthy that between September 2009 and March 2010, loans to the Greek private sector were what diminished most.
This proves that foreign private banks were more wary of the private sector than of the government; they sought to disengage from the private sector more quickly than they did from the public sector. They gradually closed the credit tap to households and businesses whereas previously they had sought to lend to them directly without going through the intermediary of Greek banks.
It is thus apparent that private foreign banks feared what was going to happen in the private sector. On the other hand, they did not massively sell off the Greek government bonds they held.
Foreign private banks did not begin to offload their Greek bonds massively until May 2010, when the creation of the Troika was announced and after the negotiations for a ‘stand-by’ arrangement between the IMF and Greece (25 March 2010). They had begun to be wary of Greek public debt a little earlier as they thought that the State would have to rescue the Greek banks and deal with the bursting of the credit bubble. But it was not until after the Memorandum of May 2010 had been adopted that they sold off large quantities of the Greek public debt bonds they held.
What has just been explained is in TOTAL contradiction with the dominant version, endlessly repeated by the IMF, by the governments, by the direction of the ECB and the mainstream press.
In short: Loans from foreign banks to the Greek State began to fall off sharply after March 2010, when the banks realized that Greek public debt was going to increase massively due to the bailout plan that the Troika was setting up. The objective of that plan, as was shown in the Preliminary Report of the Truth Committee on Greece’s Public Debt (http://www.cadtm.org/Preliminary-Report-of-the-Truth), was to rescue foreign and Greek private banks, which triggered a significant increase in Greek public debt. The plan explicitly laid down austerity measures so severe that the only possible outcome was a severe recession and a considerable increase in the public debt/ GDP ratio.
“The banking system poses an important further risk.” Excerpt from a secret IMF document dated 25 March 2010.
The interpretation of this excerpt from a secret IMF document of 25 March 2010 regarding private Greek banks is facilitated by the explanation I have just given.
“The banking system poses an important further risk. (…) banks have come under funding pressures, been cut off from interbank credit lines and wholesale funding, and–recently–lost deposits. Banks are using recourse to the ECB to tide themselves over, but this is not a durable solution. Moreover, the long downturn that lies ahead will significantly increase nonperforming loans, and it is possible, even likely, that the government will have to provide capital injections to stabilize the banking system and safeguard deposits. This would add further to the Government’s already large financing requirements. (See the final page of the secret documents of the IMF published by the CADTM, especially the document entitled “Secret. Greece Key Issues. March 25, 2010” p. 2, at: http://www.cadtm.org/IMG/pdf/imfinter2010.pdf)
The IMF’s behaviour is the epitome of the self-fulfilling prophecy. It was because the IMF and other components of the Troika imposed – with the connivance of the Papandreou government – a brutal policy of austerity linked to a bailout of private banks at the expense of the people that, as the text just quoted foresaw, “the long downturn that lies ahead will significantly increase nonperforming loans and it is possible, even likely, that the government will have to provide capital injections to stabilize the banking system and safeguard deposits. This would add further to the Government’s already large financing requirements.”
As an assessment of the IMF’s action, paraphrasing the preceding excerpt, the slow economic downturn that Greece has suffered can be seen to be the result of the policies imposed by the IMF and the rest of the Troika. Those policies have led to a significant increase in the number of irrecoverable loans, which have gone from 6% (1 loan out of 16 in default for 3 months or more) in the first term of 2009 to 47% en 2016-2017 (1 loan out of 2 in default for 3 months or more). As a consequence of policies imposed by the Troika with the complicity of various governments, over 50 billion euros have been injected into the capital of private banks without managing to stabilize them. This is because, as we have just seen, the percentage of irrecoverable loans has literally exploded. The amounts that have financed Troika-imposed policies have resulted in an increase in public debt from about 110% of GDP in 2009 (126% if we consider falsified data, see further on) to about 180% of GDP in 2018.
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