While arduous talks between Greece and its creditors –the eurozone and the IMF- take place, Athens is on the hook to pay effective interests rates.
With Thursday’s repayment, the Greek government bought itself some time, but it has still to pay another €500 million in salaries and pensions in the coming week. A further €750 billion is owed to the fund on May 12.
The Greek drama has undoubtedly been juicy business for the Washington-based institution: since 2010, it has made €2.5 billion in profit from its loans to the Hellenic country. If the Tsipras government fully repays its obligations-which seems to be the expectation on bond markets since yields are declining-this figure will rise to €4.3 billion by 2024.
How? It’s a mere question of interest rates, analysts at the British activist organisation the Jubilee Debt Campaign point out: the IMF has been charging an effective rate of 3.6% to Greece, while the institution currently meets its costs at around 0.9%. If this was the actual interest rate Greece had been paying the IMF since 2010, it would have spent €2.5 billion less on payments.
“The IMF’s loans to Greece have not only bailed out banks which lent recklessly in the first place, they have actively taken even more money out of the country. This usurious interest adds to the unjust debt forced on the people of Greece,” said Tim Jones, economist at the Jubilee Debt Campaign.
Market sentiment aside, the Greek economy is still hurting: the unemployment rate is slowly decreasing, although it was 25.7% last month, twice the average in the rest of the eurozone.
As economist Frances Coppola explained in a thorough blog post, Greece’s biggest problem for some time has been competitiveness.
“It has run a large and persistent trade deficit for the last half-century,” she said, raising what has become something of a polemic issue: Is the Troika right to focus on restoring Greece’s fiscal finances, and should is reduce some of the debt?
Economists are divided about whether the debt burden has been excessive and whether it has impeded recovery, with opions differing on what may have happened if Greece’s debts had been restructured in 2010. Austerity might have been less painful, but Coppola insists that the real problem is that both the public and private sectors are over-indebted.
“Private sector profligacy fuelled by rising external debt, itself resulting from (or caused by) falling competitiveness,” is the primary source of Greece’s woes, she argues.