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16th Aug 2022

IMF worried by social cost of Greek austerity

Budget cuts alone will not save the Greek economy as the country is reaching the "limit" of what society can endure, the International Monetary Fund's point-man for Athens has said, in a departure from the institution's traditionally more technocratic communiques.

"We will have to slow down a little as far as fiscal adjustment is concerned and move faster - much faster - with the reforms needed to modernise the economy," Poul Thomsen, a Danish IMF official overseeing the Greek austerity programme told Greek daily Kathimerini on Wednesday (1 February).

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  • Tear gas - the official said Greek society is reaching the end of its tether after a series of protests - some violent - last year (Photo: Contact)

He spoke of the "limitations" of political support and social tolerance toward the deficit-cutting measures - Greece saw violent street clashes and several days of general strikes in protest at cost-cutting last year.

Thomsen also called for political recognition of the painful reforms that Greece has already undertaken.

"I share the frustration of many Greek officials that much of the criticism from abroad overlooks the fact that Greece has done a lot, at a great cost to the population. While much still needs to be done, Greece has already come quite a long way. Failing to recognise this will not help mobilise support for the programme," he said.

"In this regard, I think that officials - myself included - need perhaps to be more sensitive to ensuring that we send a balanced signal when we say that the programme is off-track."

His words come just days after EU leaders scolded the Greek premier for not keeping to an agreed reform programme, including lowering labour cost and privatising the remaining state assets.

Germany has been the loudest critic. Chancellor Angela Merkel spoke of her "frustration" with Athens even as Berlin circulated a controversial idea to have an EU commissioner put in charge of Greece with power over all its spending decisions.

On the difficult talks between the Greek government and the "troika" - comprising of the IMF, the EU commission and the European Central Bank (ECB) - Thomsen said a deal on the second bail-out, worth €130 billion, will be "completed very soon, it's a matter of days."

According to the Imerisia newspaper, Athens is willing to sign up to another €4.4 billion worth of spending cuts this year to secure the deal. The cuts - amounting to about 2 percent of gross domestic product - will be in defence, health-care and pharmaceutical spending.

Greece's first bail-out from May 2010, amounting to €110 billion, relied on tax hikes and cuts in wages and pensions, reducing the country's deficit from €24.7 billion to €5 billion in just two years. But the country's soaring borrowing costs have made its debt unsustainable.

A parallel, unprecedented deal with private lenders is being sought to slash at least 50 percent of the interest creditors would cash in on some €200 billion worth of Greek bonds - a precondition for the second IMF-EU-ECB bail-out.

Negotiations on the deal have become drawn out over recent weeks. One of the sticking points concerns whether the ECB and governments should also incur losses alongside the private sector.

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