IMF and fiscal repair policies
Following the G20 meeting last week in Paris the IMF published its paper for the global economic prospects and policies challenges.
In the Policies section, paragraph 13, the Fund is proposing for the advanced G20 economies “credible medium term fiscal consolidation plans with specific measures embedded in realistic macroeconomic framework”, much in line with the Fund’s policies historically.
However, within the same paragraph the report continues “In the event of a further significant slowdown in growth, a number of these economies have scope to slow their current pace of consolidation, if offset by a commitment of additional tightening later”.
For the US the Fund embraces the Obama Jobs Act stating that “it would provide needed near-term support”.
For other advanced G20 economies , e.g. UK and Germany, the Fund finds current consolidation plans appropriate however it suggests that “near term tightening should also slow if growth threatens to be substantially lower than projected, with compensating stronger medium term adjustment”.
Back to Greece, the fiscal consolidation program designed and monitored – primarily – by the IMF, is showing no signs or intention of slowing down. According to the IMF and Greek government projections recession in 2011 will be in the region of 5.5%, 2012 forecast is 2%, a total cost for the Greek economy of approximately 10% since the program was introduced in May last year.
At the same time, the Greek statistical agency announced today unemployment figures for July 2011. The program’s intensity and austerity drive has wiped out 343’000 jobs in the private sector (820’000 unemployed in July vs. 477’000 in 2009) with the unemployment rate already at 16.5%.
The Fund’s projection in September’s World Economic Outlook for unemployment in 2012 is 18.5%, implying an additional 100’000 jobs to be lost in the next 14 months.
It appears that the Fund has different standards concerning downside risks and the “slow down of the pace of fiscal consolidation”, unless Greece is a classic case of moral hazard, a country to be made example of and penalised for the sins of its political elite, with the people of Greece carrying this painful and costly burden.