International Monetary Fund Managing Director Christine Lagarde said Greece needs to find ways to generate more cash fast because austerity measures and lifeline loans from its international lenders aren’t enough to prop up the economy.
Lagarde defended the policy of piling more loans into Greece although it is adding debt to the already staggering mountain of nearly $460 billion the country owes. Speaking to the BBC, Lagarde said that the IMF and its Troika partners, the European Union and the European Central Bank, were correct to push for drastic measures from the start.
“What technical analysis and the history of crisis management tells us is that you’re better of doing it strong and hard at the beginning in order to enjoy the benefits of the process,” she said. Her comments came a couple off weeks after the Fund’s chief economist Olivier Blanchard admitted in a working paper that the IMF had underestimated the impact on the economy of countries like Greece of austerity packages adopted over the last few years.
Blanchard said that for every euro being cut from spending that 1.5 euros was being lost from the Gross Domestic Product (GDP), three times more than originally felt as pay cuts, tax hikes and slashed pensions have slowed spending almost to a standstill, created a record high 26.8 percent unemployment and closed 68,000 businesses since 2102.
Lagarde, who has complained that Greece has done too little to rein in tax evasion, said the government’s efforts must now turn to boosting revenues. “Greece has done huge and massive efforts in cutting expenses, in bringing the deficit down, in turning to primary equilibrium if not surplus now, which is the good news,” she said.
The country is going to turn out better results than what was planned, she said, but added that “It has to do a massive effort on collection of revenue and of tax.” She also said that, “We forecast the Eurozone to be delivering growth in 2013, which is better than the recession in 2012. So, there is an improvement and the beginning of a recovery.”
Lagarde said she was confident that the Eurozone as a whole would be on the road to recovery this year. “Clearly, this is the result of national policies and a regional effort to strengthen the zone to make that currency zone a more consolidated banking union and I hope fiscal union will be strengthened as well. “It’s clearly the case that investors are returning to the Eurozone,” she said.
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