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How the IMF doomed Greece to disaster and put its own future in doubt

The IMF knows that Greece cannot possibly pay this down by draconian austerity - the policy already implemented for five years with such self-defeating effects - and the longer it pretends otherwise, the more its authority drains away. Above, a newspaper hanging from a street kiosk displays a photograph of Christine Lagarde, managing director of the International Monetary Fund (IMF), in the Monastiraki district of Athens last Friday.

Analysis

The International Monetary Fund is in very serious trouble. Events have reached a point in Greece in which the Fund\’s own credibility and long-term survival are at stake.

The Greeks aren\’t withholding a euros 300 million payment to the IMF because they have run out of money, though they soon is going to do. Five key players within the radical-Left Syriza movement took an ice-cold, calculated decision not to pay. They knew exactly what they were doing. The IMF\’s Christine Lagarde was caught badly unawares. Staff officials in Washington were stunned.

On one level, the “bundling” of euros 1.6 billion of payments due to the IMF in June is just a technical shuffle, albeit invoking a procedure last utilized by Zambia in the 1980s. The truth is it is a warning shot, along with a dangerous escalation for those parties.

Syriza\’s leaders are letting it be known they are so angry, and so driven by a sense of injustice, that they may indeed default to the IMF on June 30. By doing this they will place the institution in the invidious position of explaining to its 188 member countries why it\’s lost their money so carelessly, and why it has made such a colossal hash of their affairs.

The Greek pm, Alexis Tsipras, updated the parliament Friday on talks using the nation\’s creditors, stressing the country needed to end austerity, combined with receiving debt relief. He said his government could not “consent to the unrealistic and illogical proposals” of its lenders.

It came after Greek bank shares had plunged by as much as 14 per cent, underperforming the broader market\’s nearly 5 per cent slide. Meanwhile, the yield on benchmark 10-year debt was trading above 11 percent, with two-year debt up by a lot more than two percentage points in excess of 24 per cent.

The Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund\’s own rules and it is in open contradiction with 5 years of analysis by its very own excellent research department and chief economist, Olivier Blanchard.

ANGELOS TZORTZINIS/AFP/Getty Images

Greece\’s public debt is 180 percent of GDP. The loans are in a currency that the country doesn\’t control. It is therefore foreign currency debt. The IMF knows that Greece cannot possibly pay this down by draconian austerity – the insurance policy already implemented for 5 years with such self-defeating effects – and also the longer it pretends otherwise, the more its authority drains away. It has pushed for debt relief behind closed doors but only half-heartedly, unwilling to confront the EMU creditor powers head on.

Objectively, it is acting as an imperialist lackey – as Greek Marxists might say. Indeed, it has brought about the worst possible outcome.

This could be justifiable (sort of) if the other part of the usual IMF bargain were available: debt settlement and devaluation. This is the way IMF programmes normally work: impose tough reforms but also wipe the slate clean on debt and restore crippled countries to external viability.

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