22 Jun, 2015 13:11

Ukraine, Greece & IMF: ‘Tale of two debt negotiations’

Western countries have their people in charge of the Ukrainian economy ready to follow an austerity path while in the case of Greece they don’t have such control after Syriza party’s victory, Jack Rasmus, professor of Political Economy, told RT.

With Greece one step closer to a full-blown financial collapse, the International Monetary Fund is offering a helping hand to a Ukraine. IMF chief Christine Lagarde this week pledged to continue financial support for Kiev even if it falls behind on its debt restructuring.

RT:Is it surprising that the IMF is willing to lend money to Ukraine at a time when Greece is on the brink of default?

Jack Rasmus: It’s an interesting tale of two debt negotiations, isn’t it? In the case of Ukraine of course the IMF is loaning more money after $17 billion last year, they roughly double it, maybe a little bit more. They have two people in charge there appointed by the US and Europe who are pretty much running the Ukrainian economy [including Finance Minister] Natalie Jaresko … So they have their people very much in control. As long as they are in control of the austerity measures they are willing to put more money in. In the case of Greece, they don’t have such absolute control anymore since the Syriza party won the election here back in January and it’s clearly on a path of reducing the austerity, not increasing it. In Ukraine the austerity is increasing and that’s why the IMF is willing to put more money in. In the case of Greece of course there is a fight against austerity. The IMF in the Greek situation only has 21 out of the $300 billion of debt committed there - most of that debt is held by the European Commission and to some extent the European Central Bank. So it’s a negotiation with three parties and the IMF is a junior party but it’s also taking a hardest line of the Troika in Europe in negotiations with Greece.

RT:Is financial support for Ukraine essentially a political decision?

JR: Right now it’s mostly a political decision because as I’ve said over a year ago when the first bailout occurred…the $17 billion was far less then what would be needed to bail out Ukraine. I predicted at that time at least $50 billion; it’s probably a higher number now. And of course the situation in Ukraine continues to deteriorate rapidly on the economic front and as it does the IMF is turning the screws and demanding even more austerity. So the situation economically in Ukraine will continue to get much worse. That’s not just the question of the policies and what’s happened politically in the East, it’s the policies of the IMF that are dramatically putting the squeeze on the Ukrainian economy. It’s a different situation in Greece because the IMF is only one of three main negotiators and it appears now will not be the major negotiator. What will come out of the Greek negotiations is that more money will be provided to Greece who will then use that money to pay off the IMF and maybe even the ECB. In other worlds it will take more loans from the European Commission stability fund and pay off those other two. So then it will be just henceforth down the road in the matter of debt owed by Greece to the European Commission. I think a settlement somewhere along those lines is what’s going to occur here by June 30 or shortly thereafter, and extension is quite possible.

‘Greek people voted for end of austerity, otherwise democracy is on paper’

On Sunday in Athens people were protesting against austerity. Anastasia Giamali, journalist for the Syriza-affiliated AVGI newspaper, says that if creditors have no respect for the people’s will, if they cannot understand that austerity can no longer continue then there are no reasons for Greece to remain in the eurozone.

RT:Due to large withdrawals of money from banks over the past six months or so, do you think the Greek government will introduce capital controls at this point?

Anastasia Giamali: I would say that despite this terror tactics and this propaganda that a Grexit is possible, that bankroll is also possible. The banks are open and working perfectly, the cash machines are handing out notes as [usual]. Although we must say that this has happened before. We had large amounts of money [being withdrawn] from the country in times when there were threats, there was election talk and the negotiations were reaching their maximum.

RT:So people in Greece are not frightened? But do they want to stay in the eurozone?

AG: Over the past five years the Greek people have suffered a lot- have suffered severe austerity, severe cuts and I don’t think they have anything else, anything more to fear. Of course they want to remain in the Eurozone but they are now used to the idea that a Grexit and a default is used as a major threat.

RT:There is a fear that if Greece fails to make the next payment, it could cause a ripple effect among EU banks and financial institutions. Do you think the panic that we’re seeing in Greece with the money withdrawals would influence what the EU decides?

AG: The situation as we see it unfolding right now should be determined politically. The European leaders, institutions, creditors, the ECB, the IMF have to decide politically what should happen in Greece. Of course there is a large amount of money being withdrawn from the banks, fleeing the Greek banks. But as I told you before, this is not the first time. This happened in 2012. From 2010 to 2012 more than 90 billion euro left the country, were taken away from Greek banks. I would say that the European Commission, the ECB, the IMF should discuss now politically whether democracy is respected, whether the fact that the Greek people voted for an alternative, for an end of austerity is valid enough, because otherwise democracy is just on paper.

A protester waves a Greek flag during an anti-austerity pro-government rally in front of the parliament building in Athens, Greece, June 21, 2015. (Reuters / Yannis Behrakis)

RT:After several months of negotiations between Syriza and the EU officials do you think the possibility of Greece leaving the EU has become more real?

AG: I can tell you from what I know as a journalist on how the Greek government sees things. It is willing - as Minister of Finance, Yanis Varoufakis, said during his speech to the Eurogroup - to find a workable mutually beneficial compromise, an agreement that could be beneficial for both sides. I don’t think that a Grexit is a real option but if the creditors have no respect for the people’s will, if they cannot understand that austerity can no longer continue, that the GDP fell by 25 percent, that wages fell by 37 percent, that pensions fell by 47 percent then I don’t see why Greece should remain in the Eurozone.

RT:Minister of State Nikos Pappas said today that the IMF is not needed in the EU. Do you think Greece could turn to the Russian gas pipeline project, or perhaps other ventures, to help get itself back on track?

AG: Definitely. The fact that the new Greek government wants to tighten relations with Russia that have been for long cold …I think it’s good. I also think that the new Greek government wants to make Greece a hotspot for energy and take advantage of its geopolitical and strategic position.

RT:Back in 2012 the EU was also making contingency plans if Greece were to get out of the eurozone. Do you think that scenario has become more likely now in 2015 than it was before?

AG: My view on the subject is that if Greece somehow exits the eurozone or the EU, Greece will not be the only one, other countries will follow. If the European institutions are willing to take that risk then I think this is the end of the European project, of European integration and this will cause huge instability in the already problematic area.