Tuesday

26th Oct 2021

Troika officials admit errors, as criticism mounts

When Klaus Masuch and Servaas Deroose walked into the European Parliament in Brussels on Tuesday (5 November), they must have been relieved to be facing MEPs rather than angry Greek protesters on the streets of Athens.

As representatives of the so-called troika of international lenders, the two are familiar with the Greek finance ministry where their colleague from the International Monetary Fund (IMF), Poul Thomsen, had to duck a rain of coins being thrown at him in Athens that same day.

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  • Riot police in Athens clamp down on protests against the 'troika diktat' (Photo: Contact)

Deroose, a Flemish economist and deputy-director general in the European Commission, was involved in the design of the first Greek bailout, in 2010, and was the commission's "mission chief" for the Greek programme until spring 2011.

Masuch is a German economist chairing the "EU countries division" at the European Central Bank and was often seen in Athens and Dublin as part of the troika missions to Greece and Ireland.

Having unelected officials determine wage and pension cuts is a massive blow to a country's sovereignty. Protests accompanied the troika missions everywhere they went.

Tuesday was the first time troika officials appeared in front of the European Parliament, whose deputies are keen to extend their scrutiny over the workings of this semi-official body.

Deroose and Masuch were eager point out that theirs is just "technical expertise." The real decision-making power, they said, lies with the Eurogroup - the 18 eurozone finance ministers who decide if and how much money a country gets.

It is also the Eurogroup who has to formally sign off on each bailout tranche, with the troika currently assessing if Greece, Cyprus and Ireland are fit for their next pay-outs.

But it is the troika that provides the ministers with the economic forecasts, scenarios and figures they need to make the decisions.

And in Greece's case, their forecasts were "off-track," as both Masuch and Deroose admitted.

But they blamed the Greek government for having provided them with incorrect figures back in 2010.

"External factors" such as the worsening global economic crisis, political instability in Greece and a "lack of ownership of reforms also increased the social cost," Masuch said.

However, Greece was not an isolated case.

Vested interests

Earlier this year, the IMF itself admitted that so-called multipliers - elements of a formula they used to make economic forecasts during the euro-crisis - had been wrong because they underestimated the impact of austerity on the economy.

The troika officials on Tuesday admitted they had all worked with the same wrong numbers.

"All macroeconomic projections rely on a common set of projections and multipliers. We use the same as the IMF, so we have a similar approach," Deroose said.

Asked if they would do things differently with hindsight, the two officials said the broad strokes of the programmes - also in Greece - were right, but the focus could have been changed in places.

Deroose said there was too little emphasis on competitiveness in the first Greek programme, while "financial stability in the banking sector" should have featured more strongly when it came to restructuring and recapitalising banks.

The troika also overestimated the capacity of the public administration to implement such a large programme.

For Masuch, the "surprising" experience in Greece was to see the extent to which "vested interests" tried to "avoid, delay and water down reforms."

"We suggested getting rid of unjustified privileges, which keep prices high to the detriment of the consumer. But there was not much coming from the government on this front," Masuch said.

The hearing was only a first step.

The heads of the political groups in the European Parliament are set to decide later this week on the scope of a parliamentary inquiry into the troika.

"The troika did more damage than good," European Parliament chief Martin Schulz wrote in an article published by the Greek daily To Vima on Sunday.

"Someone has to take responsibility for the failed attempts and the huge disappointment caused," he wrote, adding that the parliamentary inquiry will seek to understand "why so many mistakes were made and why so many statements considered correct three years ago proved to be absolutely wrong."

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