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Monday, 16 May 2011

Is the monetary future of the Euro zone, Greece and Portugal jeopardized by IMF Chairman Dominique Strauss-Kahn’s “gung ho-attitude”?

Shocking news yesterday, May 15th: Dominique Strauss-Kahn (DSK), the French chairman of the International Monetary Fund (IMF), was arrested minutes before he was to due to fly to Paris from John F. Kennedy International Airport in New York.
Strauss-Kahn was accused of a "sex attack" on a hotel maid at a Times Square hotel on Saturday. The fact especially incriminating Strauss-Kahn, was that he left the hotel room in such a hurry that he left his mobile phone behind. Besides that, he has been positively identified in a line-up by the hotel maid. Strauss-Kahn faces a possible 20 years of imprisonement if he is found guilty at a criminal court. Although Strauss-Kahn is chairman of the IMF, he doesn’t have diplomatic immunity automatically in a case like this.
I am not here to accuse Strauss-Kahn, although the presented facts and his past behavior are not especially in his favor. What makes this situation very juicy, is that DSK was on his way to Europe to talk about the Greek and Portuguese financial situation.
The Financial Times writes two articles about the difficult situation the IMF is currently in. Here are some pertinent snips, accompanied by my comments.


IMF head’s arrest hits debt talks.
Talks on the Greek sovereign debt crisis and French presidential politics were both thrown into disarray after Dominique Strauss-Kahn, managing director of the International Monetary Fund, was escorted off an aircraft in New York over the weekend to face sex charges. 
His personal relationships with European leaders and ability to push through IMF support made him a crucial figure in arranging bail-outs for Greece, Ireland and Portugal. 
“He showed himself to be a good manager of the IMF during the financial crisis by winning backing for his convictions and getting people to agree,” said one European official involved in the talks on Greece. “This is not at all a trivial affair.” 
A meeting on Sunday between Mr Strauss-Kahn and Angela Merkel, German chancellor, was cancelled. A different official will represent the IMF at meetings of eurozone leaders that Mr Strauss-Kahn was due to attend in Brussels on Monday. 
No crunch negotiations on the eurozone are currently under way. The terms of a €78bn ($110bn) joint EU-IMF bail-out for Portugal have already been agreed and it is likely to be some weeks before officials must decide whether or not to adjust the Greek loan terms. 
The IMF said it would be run via a protocol for times when the managing director is travelling. John Lipsky, its first deputy managing director, was in temporary charge during Mr Strauss-Kahn’s absence and has been involved in the eurozone bail-outs.

Athens tested by IMF bail-out negotiations 

The International Monetary Fund has dismissed fears that talks with Greek officials on a revamped bail-out package are close to collapse over the socialist government’s reluctance to push ahead with privatisation.
George Papaconstantinou, finance minister, has come under pressure to accept harsher terms for a planned €50bn ($70bn) of disposals – including an accelerated timetable and sales of 100 per cent of state-controlled enterprises – despite strong opposition within the cabinet and the governing Pasok socialist party.
Achieving agreement on a broad-ranging privatisation programme to reduce debt is critical to Greece’s chances of getting a fresh European Union-IMF bail-out loan in 2012 to avert a sovereign default.The IMF said on Sunday: “The talks are continuing and making progress.”
The statement came after Greek officials voiced fears that the talks would fail because the terms demanded by the EU and IMF were politically unacceptable, said one person with knowledge of the discussions.
“One proposal, that the EU should take over the privatisation process from the Greeks, was seen as a red flag,” it said.
It was unclear what effect the arrest of Dominique Strauss-Kahn, IMF managing director, who had been due to discuss the revamped Greek bail-out in Berlin on Sunday, would have on the talks.Mr Strauss-Kahn had initially strongly supported Greece’s reform effort but distanced himself as the programme ground to a standstill this year.
The so-called “troika” – experts from the Commission, IMF and European Central Bank – had been due to wrap up a deal by midweek covering privatisations; a four-year, €26bn fiscal and structural programme; and an extra €6bn of cuts to offset budget slippage this year.
The austerity package would include more cuts in state pensions and allowances for public sector workers, along with mergers and closures of hundreds of outdated state entities.
Many Greek politicians see the current terms and conditions of the 2012 bailout package as too harsh. Especially the Greek might therefore see the arrest of Dominique Strauss-Kahn as a golden opportunity to renegotiate a “better deal” for themselves with the EU, ECB and IMF:
·     The substitute for DSK is the – in this particular matter –  less experienced John Lipsky
·     Besides that, Lipsky was planning his resignation from the IMF at the end of August 2011.
o   This might put him under pressure to get quick results, as his “mental timetable” ends within three months.
o   The Greek could capitalize on this by delaying the negotiations, until real concessions have been done by the troika of EU, ECB and IMF.
·    An organization, like the IMF of which the chairman has been caught ‘with his pants on his knees’, loses moral standing and might be easier for the Greek to pass over and / or ignore.

That is what you get when all countries in the Euro zone are tangled in the web of “bail-out mania”, where one half of the European countries is paying for the other half: That the future of the Euro zone and the Euro is jeopardized by an official that seemingly is thinking with another part of his body than his brain.

Already now a majority of the Dutch people is very strong against bailing out the Greek one more time.This number might further rise when the Greek renegotiate a deal for themselves with a lot of gain and no pain. And I’m certain that the Fins, the Germans and the French will think equally. Please, let us stop with this bail-out madness and let’s give the Greek an opportunity to restructure their debt under very strict circumstances.

Because if the Greek and Europe together fail to restructure the financial situation and future liabilities of Greece now, the next bail-out will be lurking around the corner.

Should this restructuring lead to the sale of the Akropolis and a handful of islands? I seriously doubt it. However, what should happen is:
·    Stop with useless privatizations of Greek national treasures and islands that deliver token amounts of Euros, but cause enormous blows to the national pride.
·    Make sure that the financial pain in Greece is especially felt there were the problems were caused to begin with.
o    Let not the poor and / or unemployed Greeks suffer from unreasonable cutbacks.
·    Make an end to structural tax evasion of the Greek population, by taxing all buildings and houses that are officially “not finished” (the ones with the reinforcing bars sticking out of the roof), but are already occupied for years
·    Make an end to unreasonable and intenable salaries and perks for Greek civil servants.
·    Make an end to intenable future pension funding obligations for Greek civil servants.
·    Make sure that the Greek working force is big enough and works long enough to fund the Greek retirees
·    Make the Greek feel that their debt, unemployment and deficit on the trade balance is their problem to begin with and not (only) the problem of the rest of the Euro zone.

·    AND make sure that the maverick banks that invested heavily in Greek and Portuguese sovereigns also feel the pain of their investments gone awry.

·    AND let the Dutch and European finance ministers stop with their stories of doom and gloom about what will happen when Greece and Portugal should default. They should act, instead of telling fairytales to the European people.

But I’m quite pessimistic that this will be the outcome of the negotiations between the troika IMF, EU and ECB. Probably there will be another bail-out of Greece, and another… And so the bail-out mania will go on for another year without truly solving the financial situation of Greece, Portugal, Ireland and Spain.

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