The Responsibility of the Troika as provider of credit

The Financial Times published an interesting article early June 2016 (Painful choices still hang over Greece, by Martin Wolf) suggesting that the real difficult decisions are simply not taken at EU level and that the competent authorities are just kicking the can down the road.

Current Situation Unsustainable

In the aftermath of the European debt crisis, the Troika, a tripartite committee formed by the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF), offered several bailout loans to cash strapped Greece. There is now a growing consensus that the financial situation of Greece has become unsustainable. Martin Wolf describes three options for the eurozone, each option having its own complexities: (a) to negotiate a permanent reduction in the present value of Greece’s debt, (b) to negotiate a Grexit or (c) to continue as it is now.

Liability for Improper Credit Decisions

The first two options are probably by far the most complicated, however, the latter instinctively the most wrong. By simply extending and pretending – the Eurozone pretends Greece is not in default, Greece pretends it will reform - both parties are playing on time but not bringing us closer to a solution.
In addition, extending existing credit or granting additional credit to a lender in serious difficulties is not without danger. Bank liability for improper credit decisions is an established concept in commercial banking. The Troika could be considered as a banking consortium for this matter and there is no reason why they should escape liability. The Troika combines the functions of lender, broker, adviser and prudential supervisor. It is self declared competent in every meaning of the word and is assisted by an army of experts, high-level advisory groups, and other specialists.
The latest debt sustainability analysis of the International Monetary Fund even concludes that the programme agreed in 2010 was wildly unrealistic and that the debt relief imposed in 2011 was insufficient. The targets imposed on Greece are unachievable. In such circumstances it is not possible to simply extend financing without, at the same time, facing increased liability. In the real/business world both the borrower and third parties can sue the loosely provider of credit.
The pressure exercised on Greece to accept the terms of the bailout programme and the excessive intervention in Greece’s domestic affairs by way of control mechanisms, have not improved the Troika’s position.
The situation has become so complex that no matter what the Troika now decides - maintaining, extending or terminating the bailout programme – its political (and legal) liability will be engaged.

Time to Act

The argument that it might be difficult to extrapolate commercial banking principles to the political level, is not relevant. It is now time for the Troika and its individual components to demonstrate political responsibility and summon up the discipline and the courage to deliver a clear choice, other than kicking the can.

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This release was published on openPR.