The question

In October 2009, the Socialist party (PA.SO.K) got elected with 43.9% of total vote and on a platform of economic reform. A characteristic (populist) motto of the socialists before the election was “Money exists”, referring presumably to the amount of public funds which would be available after the socialist party would come to power and “cleanse” the economy of tax evasion, corruption and mismanagement. Prior to the elections, George Papandreou was campaigning in an Obama-style professional-yet-friendly look (he even proclaimed a 100-day governance period after he got elected) and his major TV election commercial was one where he was sitting in front of a desk, with his shirt sleeves up and he said “Let’s go” in a voice full of determination. Presumably, this motto was devised to convey the message of “Let’s get to work”. A year later, Greece was in a dire financial situation, was receiving financial help from the IMF and the European Union, while at the same time implementing painful austerity measures. What happened?

The IMF

The IMF (International Monetary Fund) is an international monetary institution, which was set up after the end of the Second World War. It was conceived at the Bretton Woods Conference which took place in New Hampshire (USA) in July 1944 and it  began operations in March 1947. Originally, it started with 29 member states, but there was a great expansion of its membership during the 1950s and 1960s. The IMF’s initial aim was to promote international economic stability and oversee the international monetary system i.e. the system of exchange rates and international payments through which countries trade with each other.

This aim was also compatible with the “par value system” (also known as the Bretton Woods system) which meant that the countries that joined the IMF up to 1971 agreed to keep their exchange rates pegged at specific rates. In particular, the member countries agreed to keep the value of their currencies pegged in terms of the U.S. dollar and the United States agreed to retain the value of the dollar pegged in terms of gold. These rates could be adjusted only to correct a “fundamental disequilibrium” in the balance of payments, and only with the IMF’s agreement. This system collapsed in 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold.

Since the 1970s the IMF took on a new role, that of a lender to governments that could not borrow from the international markets. However, as it usually goes with borrowing and lending, the IMF lends funds under specific conditions. The measures that the IMF usually requests of the government-borrower, also known as Structural Adjustment Policies (SAPs) include trade liberalization, currency devaluation, privatization, reduction of government deficits, reduction of the role of the government in the economy, all with the aim of attracting FDI (Foreign Direct Investment) i.e. long-term capital investment from multinational companies. Most of the time, the results are a decrease in the provision of the provision of health care services and education (also known to economists as merit goods), a fall in real wages, and an increase in unemployment. To find out more about the IMF, you can visit its website. For a critique of the IMF, you can visit Naomi Klein’s website.

Greece

Greece is a small country at the southeast corner of Europe. Its population amounts to almost 11,000,000 people according to the latest census. It is not a rich country. Its GDP per capita is $28,000, according to the latest Economist publications, bringing Greece to the 29th position of the world economies.  Greece was under the rule of the Ottoman Empire for almost 400 years (1453-1821)  and its culture often resembles that of Turkey, the Middle East and Northern African countries rather than that of the northern European countries. However, it has been historically considered as part of Western Europe, thus being grouped together with rich European countries like France, Germany and the United Kingdom. To find out more about Greece, you can visit wikipedia, the CIA Factbook, or the BBC website.