Written by: Adam Riggio

Among progressives around the world, the reputation of the International Monetary Fund is so far from stellar that it’s vanished into the eternal night of the void between galactic clusters. The loan conditions of IMF bailout packages straightjacket countries of the global south to prioritize debt service over all else. Human services like medical care, economic development, and environmental protections are first to go.

That’s the reputation of the IMF after their notorious bailouts of the 1990s across East Asia and Latin America. But the situation today, especially as the 2008 financial crisis exposed, is more complex and more systemic. The austerity plans of the IMF last century have influenced contemporary economic crisis policy, much for the worse. Today the agency itself is merely a large cog in an enormous machine. But the agency’s norms are fixed by the cruel calculus of global risk speculation worth tens of trillions of dollars.

Consider one ongoing and noteworthy financial crisis, lubricated with IMF loans, that began with a cataclysm and still simmers with sustained desperation. Consider Greece, where a new economy almost emerged.

IMF Loans Weigh Down a Greek Great Depression

The Greek economy in 2020 is not exactly terrible, but neither is it great. Unemployment is just under 17%, which is terribly high, if a noticeable fall from the worst of the economic crisis, when it approached 28% in 2013. Youth unemployment remains an ongoing crisis, however, at 36%. About one in every three Greeks under 25 who are looking for work can’t find it.

Given that level of stagnation, a traditional approach for social democratic governance is for the state to step in with public works projects. Here is where the IMF has contributed to prolonging Greek austerity.

From 2010-2014, the IMF gave the Greek government US$27.8-billion in loans, and so far US$4.2-billion in interest has built on that. The Greek state started paying that loan back in 2013, and as of 2019 had repaid US$23.2-billion. At the current rate of repayment and interest buildup, Greece will give the IMF about US$10.6-billion more than it has already. This is money that Greek leaders can’t spend on human services, ecological repair, public works, or other kinds of economic stimulus to get Greek people working and earning good money again.

The IMF: No Mastermind, But the Bagman

But it’s all too easy to blame the IMF, since they’re the organization that issues the loans to countries like Greece (as well as Argentina, Uruguay, Iraq, Ukraine, Sierra Leone, Colombia, and Angola, plus others). The IMF writes the structural adjustment programs that require governments to run on austerity principles. But despite their signature on the loans and the guarantees, the IMF is not ultimately responsible.

Greece’s economic crisis is peculiar enough to lay this fact entirely in the open, because Greece’s crisis wasn’t a matter of Greek governance alone. The roots of Greece’s unemployment crisis through the 2010s lie in the country’s banking sector. Greek banks remain crippled with debts of their own.

Almost all the money that the country’s private banks would ordinarily spend on financing economically productive businesses is roped into servicing debts to international private lenders. Among the ripple effects of that shortage of business finance capital is that incomes for all brackets from the unskilled labourer to the professions have fallen for the past decade.

The Euro: A Temptation Self-Destructs

Greece’s private banks ended up with these debts because the country ended up, from 2001 to 2010, with a higher credit rating than its economy and governance could justify. Greece replaced its drachma currency with the euro in 2001, and so global-scale investors and lenders treated Greek banks as if they were German. As far as currency went, they were German banks.

But Greece never had the diverse and powerful economy, nor the reliable governance expected from Germany. At the time of the crisis, the Greek government only collected just over ten percent of the taxes its citizens owed, and mass-scale tax evasion remains ordinary today. The same fast and loose financial attitude is common in Greece’s banking sector, which is why so many private banks in the country themselves took on loans that they were never in shape to repay. This is why, in the depth of the crisis in 2015, Greece’s debt-to-GDP ratio was the highest in the European Union, at 172 per cent.

A country in such a financial pickle – high unemployment, anemic tax revenues, massive state and private debt loads – typically can’t qualify for massive easy loans from global-size investment banks and hedge funds, or secure top ratings from credit assessment agencies. But Greece did during its first decade in the Euro: being part of a single currency made global financiers believe that Europe’s economic engines, Germany and France, would support Greece’s banks and government as if they were worse off regions of their own countries.

But when Greek state and banks’ accumulated bad debt grew too high, the rest of the EU refused to support them. Austerity and recession were the only options for the country, which latched Greeks to the strict conditions of the IMF.

Straitjacketed Twice Over

Well, those weren’t the only options open to Greece. After the socialist Syriza party won state power, their finance minister Yanis Varoufakis developed a plan to secede temporarily from the Euro zone. Under Vaoufakis’ plan, Greece would return to the drachma for several years so that they could devalue their currency. The export boost that would come with devaluation is the only way for a country in such financial condition to maintain economic stability.

EU leadership, however, was not about to let a bunch of upstart Greeks plunge the Euro currency into a period of terrifying uncertainty by pulling out of the common currency. They were more than happy to trap Greece in a monetary policy better suited to the economic powerhouse of Germany than the spiralling depression of their own country.

The result: Greece’s Prime Minister Alexis Tsipras caved to EU demands and accepted the IMF’s austerity regimen in exchange for the US$27.8-billion loan package. Unemployment and cratering productivity has crippled the Greek economy. While Greece’s economy has broadly recovered by now, living standards and wage across the country remain worse than before the crisis, and only slightly better than 20 years ago before adopting the Euro in the first place.

Traps and Innovative Solutions

What can we learn from the Greek case? Despite the reputation of the IMF as the mastermind organization of global austerity, we can see how today it is largely one piece of a larger machine. IMF loan conditions may have locked Greece into the brutal austerity program that prolonged its depression. However, the European Union designed the austerity plan itself, for the sake of multi-billion dollar investment fund companies whose irresponsibly reckless speculations on Greek debt drew the country further and further into a financial insolvency that not even a state could solve.

Varoufakis, who could have been a pioneer in currency economics, quickly lost his cabinet post in the Syriza government as the IMF-EU austerity plan kicked in. He has not stopped working on ways to overcome austerity economics, developing the framework for an International Debt Clearance Union. This organization, if it ever comes into existence, would be a common fund of contributions by all states. That fund would wipe out the bad debts of governments whose people have suffered from the selfish financial gambling of investment funds all over the world.

It is only one example of the creativity that we progressives, at all levels of influence from everyday activists to movement and state leaders, must apply to capitalism’s most dangerous seasonal catastrophe: unrestrained gambling on loans and debts big enough to break entire countries and societies.