So it’s official: Greece has called in the IMF. Prime Minister George Papandreou announced today that he’s activating a debt rescue package, still under negotiation, which will allow Greece to borrow 30 billion Euros from its euro zone “partners” and 10-15 billion more from the Washington-based lender of last resort, through which the world’s large economies impose “solutions” on smaller, struggling ones.
The IMF’s arrival is a humiliation above all for the European Union, which throughout the Greek debt crisis has acted more like a multinational deciding whether to close an unprofitable branch than a political association of equals. Yes, a loan was eventually agreed, but it was too little too late. Through all those weeks of arguing and will they-won’t they foot-dragging, the financial markets feasted at Greece’s expense, pushing the yield on 10-year debt up to yesterday’s high of 8.83% and making Papandreou’s SOS call a foregone conclusion. He must now regret the haste with which he exposed the black hole in the country’s budget when he came to power last year, even if it was to kick-start a program of reform.
The markets have of course been "cheered" by Papandreou's announcement. But what will the international money men’s presence mean for the Greeks? The good news is that the country won’t now default or turn into Argentina. The bad news is that with devaluation ruled out as a way to reboot the economy, rapid deflation appears the only way forward, and many Greeks have already tightened their belts as far as they will go. The tough measures Papandreou’s government proposed in February to placate the markets and the European Commission probably won’t be enough to please the IMF; nobody knows what the final shape of the tax reforms will be, so nobody can plan. The only thing that’s obvious is that the ship is listing; Greeks of means have rushed to expatriate their assets, sinking them into Paris and London real estate and Zurich bank accounts. The investment capital to build a viable economy will now have to come from multinationals like the French energy company EDF, which is studding the skyline with wind turbines to exploit one of Greece’s most abundant natural resources. Greece is being handed off from the political wing of Europe plc to its for-profit partners.