IMF Optimistic on Greece … Greece currently looks poised to avoid a restructuring of its debt, although Europe's fiscal crises could yet spread to other parts of the euro zone and parts of Eastern Europe, the International Monetary Fund said Thursday. "We think that Greece should be [headed] in the right direction … there's no need for any type of restructuring," said Antonio Borges, director of the IMF's European Department. He said the IMF is prepared to assist Greece if it calls for additional financial support and said it could always revise its view on Greece depending on new data. – Wall Street Journal
Dominant Social Theme: Everything's going to be OK. The EU is fine and so is the euro. Don't worry, be happy.
Free-Market Analysis: This is one of those articles where you have to check the date. The Greeks are rioting, the Eurocrats are panicking and meeting secretly in Greece, the bond markets are quaking, too, and Antonia Borges sounds … well, happy. We thought perhaps this was an article from 2007 before it all started to go so horribly wrong. But no, the Journal published the article on May 12th, so Borges' eldritch optimism has to do with the situation as it is now.
While Borges hasn't contributed anything substantial to the larger dialogue outside of rhetorical creepiness, his statements do provide us with a classical example of a power elite sub-dominant social theme. The larger elite promotion would have to do with the wonderful immutability of the European Union itself. The lesser theme has to do with the immovable rigor of its financial and regulatory priesthood and the sacredness of the project itself. The EU is an impossibly positive good. In fact, in all its goodness, it is scheduled to expand!
The Wall Street Journal seems happy to accommodate Borges's unreality. We learn from the article that he made the comments after the IMF's twice yearly report on the European economy. (That must have been some report.) But his statements just sound bizarre, coming as they do "amid new concerns that Greece may request an additional €60 billion ($85.21 billion) in aid and try to restructure its current debt package."
This is not Borges' view. The IMF, he intones, is not concerned about a Greek default and is in fact more worried that participants in the crisis might get the idea that there is, somewhere, out in the ether, "a miraculous restructuring solution." Borges, of course, being one among a pantheon of pudgy IMF Immortals, thinks he has a better solution. The country is just beginning a €50 billion privatization program, and Borges has figured out this represents less than 20% of total government-owned assets.
Explaining that Greece "has an extraordinary portfolio of assets" Borges estimates that there is about "€280 billion alone in real-estate assets," of which the Greek government could dispose. We mentioned that Greece could dispose of the Parthenon the other day in passing, but Borges sounds like this is just what he has in mind! Exactly what does he mean by an "extraordinary portfolio?"
Here we have to stop and insert a feedback that appeared in the Journal following the article. We often like to read the feedbacks to see if the impressions we are getting shared by others. In this case, Borges' comments were so unreal that we wondered if others would have the same reaction we did. Here's the feedback from Basil Coukis:
The IMF, a coven of accountants who have mastered double-speak but not political economy, looks at impending catastrophes and sees glasses half-full. Using the wooden idiom so dear to the intellectually handicapped, the Director of the IMF's European Department talks out of both corners of his mouth when he says that Greece has state property valued at 280 billion euro and can therefore resolve its debt problem by liquidating this fabulous treasure.
In the view of anyone familiar with Greece, with the inferno of its state property, with the incompetence of its government, and with the explosive mood of its population, this is a preposterous statement. Not so, however, for the IMF which stands ready to throw more good money after bad. This article has achieved the seemingly impossible. It has made the United Nations look good.
Borges does have the sense to qualify his statements slightly by pointing out that "privatization would take time and would be complicated by issues like local politics and labor unions' interests." But then he compounds the general looniness of his argument by "pointing optimistically to Spain, where excellent progress has been made restructuring the country's banking system over the past year." Say what?
According to Borges, "Spanish banks' overall exposure to Portugal is limited and contagion risk from its Iberian neighbor isn't a major concern at present." Well, he gets points for using the word "Iberian," but last we checked (and the elves have an extensive on-the-ground presence in Spain), big Spanish banks were likely entirely underwater as regards Spain's larger real estate crisis.
As several perspicuous DB feedbackers have pointed out in the recent past, no one has ever demanded that Spanish banks fully mark their domestic real-estate portfolios to market. If they did, it might be revealed that the banks are hundreds of billions in debt and facing inevitable write offs that effectively make the Spanish banking system insolvent. (Of course, this would be inconvenient for everyone.)
Borges does give us a hint of what he is really thinking toward the end of the article. Turns out, that Borges likely is doing what so many traders do: he is "talking up" his book. He tells the Journal, in fact, that the most critical factor in the longer term is "restoring GDP growth in the crisis-affected countries, with stronger roles for the tradable sector and exports, and less reliance on the non tradable sector, capital flows, and domestic demand."
This is revealing. The Eurocrats have decided what we often suggested – that there is no way out of this crisis. The conclusion these Mavens have come to is perhaps that the best solution is to put on a brave front and deny, deny, deny. Denying won't make the problem go away, but it will give Greece and the other starving PIGS additional time to "grow" their way out of their current dilemmas. To this end, Borges warns that Greece needs to deepen its "austerity" (good luck with that) and the ECB ought not to raise rates anytime soon.
Presumably, in addition to urging Greece to sell its "extraordinary" assets, Borges and the others are hoping for a fillip of inflation to help devalue the euro, which in turn shrinks the value of Greece's debt burden. But what it really comes down to is that Borges and the other Eurocrats don't have any certainty when it comes to Greece (or Portugal, or Ireland, or Spain). They have the idea, muzzily, that the Eurosphere will "turn a corner" and growth will magically reignite. That's not a prediction so much as a fool's bet.