The third “memorandum of understanding” expires today. With Greece’s completion of a three-year, 61.9-billion-euro eurozone emergency-loan package, it can once again borrow at market rates.
The expiration of the memorandum also ends, for now, the direct control by Europe’s “troika”—the International Monetary Fund, the European Commission, and the European Central Bank—over the Greek government. But its conditions, constraints, and consequences will endure.
Back in 2010, Greece, along with Portugal, Spain, Ireland, and Italy, was definitely in trouble. The Great Financial Crisis crashed into all of Europe, but it hit the weaker countries hardest—and Greece was the weakest of them all.
Its economy shrunk by a quarter, and youth unemployment rose to roughly 50 percent. The memorandum was, for all concerned, the easy way out. It started a game of “extend and pretend” on the Greek debt, based on optimistic forecasts and on policies of reform that had no basis in the reality of Greek economic conditions.
The policies came from the IMF—its standard repertory of austerity and “reform.” But its staff and directors knew from the beginning that these measures would not suffice.
IMF executive directors from Australia, Switzerland, Brazil, and China voiced objections. Channels were therefore bypassed, objections ignored. The Fund was nearly out of work and money because of the failures of its programs—and the relative success of countries that ignored them—all over the world.
And its managing director at the time wished to be the next president of France.
So Greece, which is to say its creditors—especially French and German banks—received the largest loan in IMF history (relative to its ownership share). And that 289-billion-euro loan came largely from U.S. taxpayers."
Read more from James K Galbraith's article in The Atlantic Monthly here.