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Why Should Christine Lagarde and the IMF Apologize to Greece?

14 June 2014 / 17:06:25  GRReporter
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The American newspaper Wall Street Journal focuses on the mistakes of the International Monetary Fund (IMF) which have led to some consequences in the case of Greece, and argues that the organization should seek an apology from the country.

"Last week, Christine Lagarde demanded an apology from Britain, but it is unfortunate that the IMF director did not show the same courtesy to Greece this week," said the WSJ, adding that the mistakes of the fund have cost Greece a lot.

As the author Simon Nixon explains, the IMF warnings to the UK that it is playing with fire didn’t cause any damage, while the fund’s mistakes of last year in regard to Greece have led to actual consequences.

The IMF’s refusal to believe that Greece will reach a primary budget surplus results in a delay of 7 months in the transfer of vital rescue loans, which in turn delayed the return of Athens on bond markets. If Athens had succumbed to the IMF demands for further measures to reduce the "imaginary deficit," it is almost certain that Greece would have entered its seventh year of recession.

The IMF is not Apologizing, but its Report Shows Signs of Remorse

Even if the IMF does not ask for an official apology, the newspaper writes, the latest IMF report shows signs of remorse as it talks about a huge progress in economy balancing.

According to the newspaper, the recognition of progress in Greece is justified, since there is no doubt that Antonis Samaras is honest when showing determination to turn Greece into a modern market economy.

It is also noted that Greece has survived the biggest and most direct threat to its recovery, since the recent election results reinforced the probability of government survival until a new president is elected. According to the newspaper, the changes in the government are a sign that it is aware it has to continue to make difficult decisions without political interference.

Caution about the Future of Banks

According to the WSJ newspaper, the IMF is right when saying that the long-term prospects of Greece depend on the banking sector even though the international investors who have invested 8.5 billion euro in Greek banks this year disagree with that.

Who is right or wrong will depend on how quickly the Greek banks will be able to deal with non-performing loans, arranging loans for viable businesses so that they can invest and grow and for the companies which are unviable to be able to use their finances more productively.

The Wall Street Journal underlines that according to the banks, they can handle the possible damages of non-performing loans but this depends on 3 other parameters:

  • If the government continues its commitment to lift the ban on suspension of tenders at the end of the year.
  • If they are able to consolidate their portfolios of mortgage loans without causing a further decline in property prices.
  • If a large part of the liquidity which had gone abroad and in the country during the crisis is available to pay the loans.

In the next few months, it will become clear who is right. If the IMF is right and the banks are too optimistic about the fact that they can recover from the non-performing loans, the credit crisis will continue, affecting the process of recovery. But if the banks and investors are right, then the asset quality will improve quickly once confidence is back. The non-profiting loans will be regulated directly, bank lending will be resumed and growth will be enhanced. The arguments in favor of an apology from the IMF will be very strong," the article concludes.

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