With time running out for Greece to reach a deal with its creditors, the possibility that Greece could default on its €1.6bn (£1.1bn) IMF loan on June 30 is now very real.
Every time fears have mounted that such a scenario could occur before, a deal has been reached. That the markets have remained reasonably calm up to now suggests that investors believe an agreement will be reached this time too. However, the rhetoric has been upped in recent days, with Alexis Tsipras, the country’s prime minister, accusing the International Monetary Fund (IMF) of "criminal" responsibility for what has happened to his country. He has also argued that the European Central Bank (ECB) has imposed what amounts to "financial asphyxiation" through its enforced austerity program.
While Tsipras is clearly appealing to popular anti-EU sentiment in Greece, he is also wholly correct. The bailout has not worked, and it was never going to work. This was acknowledged by a number of IMF members before it was made in 2010, with Argentina’s executive director Pablo Andrés Pereira among those to argue that: ‘The bottom line is that the approved strategy would only have a marginal impact on Greece’s solvency problems…It is very likely that Greece might end up worse off after implementing this program.’
Pereira has largely been proven right. Greece’s GDP has shrunk by over a quarter - levels not seen by a developed economy since World War 2, and youth unemployment is still flirting with the 50% mark. The levels of poverty, hunger and energy deprivation have increased to those usually associated with a state at war. The IMF argues that should a creditor deal not be reached, there would be a ‘collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership’. The obvious question is what exactly has the Greek economy achieved thanks to the EU? And could things really get any worse if they do end up leaving the Eurozone?
The EU and the IMF have been resilient in sticking to the terms of the original Memorandum, which even the conservative pro-Troika government failed to implement. The EU’s reasons for doing so are clear. An agreement could lead to a swell in support for extremist parties across Europe, particularly Marine Le Pen’s Front National in France and Podemos in Spain. The IMF’s motivations are less clear. Christine LaGarde, who appeared, at least before she took charge of the IMF, to be ostensibly sensible, has approached negotiations with all the finesse of a brown bear putting in a contact lens, bulldozing through what appear to be wholly sensible concessions from the Greek government. The desire to bleed Greece into oblivion is clearly not motivated by a desire to get their money back, because they won’t get it if they're completely broke.
When the first bailout was given, Greece was sacrificed for the rest of Europe. Should Greece cede to the demands, they will spend the next 42 years paying back an average of €10 billion ($11 billion) a year to its creditors, while dealing with a contractionary austerity policy, no investment, and a massive flight of intelligent young people. Growth potential can be fostered by proper structural reforms, which Greece is in dire need of. Cutbacks in an economy like Greece’s foster recession and poverty, and the risks associated with leaving the Eurozone would be more than worth taking if its creditors refuse to bend.