American economist James K. Galbraith has responded to an article penned by IMF’s chief economist Olivier Blanchard, who recently argued that a credible deal would require “difficult decisions» from all sides. Mr. Galbraith questioned “how much of an adjustment has Greece already made” and whether its creditors have “given anything at all”, before detailing how the IMF’s predictions on fiscal adjustment and recovery fell short.
“The IMF and Greece’s other creditors have assumed that massive fiscal contraction has only a temporary effect on economic activity, employment, and taxes, and that slashing wages, pensions, and public jobs has a magical effect on growth. This has proved false” he noted and further explained that “Blanchard should know better than to persist with this fiasco. Once the link between ‘reform’ and growth is broken – as it has been in Greece – his argument collapses”.
Furthermore, Mr. Galbraith dismisses the credibility and aim of the IMF’s calls for pension cuts, underlining how the new cuts will affect vulnerable classes very hard. Instead, the economist calls the IMF to offer “truly credible measures” rather demand them from the Greek government. The author argues that the Greek proposal to address its public debt is credible.
“The Greeks have already made tough choices. Now it is the IMF’s turn, beginning with the decision to admit that the policies it has imposed for five long years created a disaster. For the other creditors, the toughest choice is to admit – as the IMF knows – that their Greek debts must be restructured. New loans for failed policies – the current joint creditor proposal – is, for them, no adjustment at all” he concluded.
