Institute of International Finance boss, who once lobbied for Greece's creditors, says focus must be on growth
Eight months after he lobbied on behalf of Greece's creditors during the biggest debt restructuring in the history of world finance, Charles Dallara launched a withering attack on the policies of austerity, saying a "new course" was needed to stop Greece's economic death spiral.
As thousands marched through the streets of Athens on a day of co-ordinated pan-European protests against measures that have seen Greek wages drop by an average of 35%, the American head of the Institute of International Finance said a new strategy was vital.
"Greece now urgently needs a greater emphasis on growth, and less emphasis on austerity. Europe needs the same," said Dallara, whose bank lobbying group negotiated the private sector bond swap that cut an estimated €107bn from the country's debt mountain this year.
"A return to real, sustainable economic growth can be the only genuine solution to Europe's crisis," he told a gathering of Greek financiers. "It is time to recognise that austerity alone condemns not just Greece but the whole of Europe to the probability of a painful and protracted era of little or no economic growth. This would be a tragedy not just for Greece and for Europe, but for the world."
With Athens on course to enter a sixth straight year of recession amid record levels of unemployment and poverty – despite the prime minister Antonis Samaras's optimism that Athens would soon take stock of €44bn in EU-IMF rescue funds – policymakers now had to be more creative and "think outside the box" by easing the pace of fiscal adjustment, which had brought "tremendous stress to Greek society".
"Greece's unprecedented fiscal effort, which was more than planned, has triggered much larger contractions of economic activity and the tax base than the original program had assumed," the IIF chief told the audience in the amphitheatre of the National Bank of Greece.
As a result all forecasts were off-target, he said, rattling off the figures. "Real GDP fell by 11.7% over the two years, rather than the [predicted] 6.5%, domestic demand fell by 15 %, rather than 7 % and unemployment rose to 25%, rather than 15%."
Barely a week ago the Greek parliament passed what will be the most draconian package of spending cuts yet – a condition of further aid to prop up an economy that has lost an estimated 20% of its output since the crisis erupted in late 2009.
"We don't need to throw out the [IMF-EU fiscal consolidation] programme altogether," he said, insisting that the Greek rescue programme had "good" elements. "But we need urgently to change course. More moderate targets are more achievable, will have less negative effects on unemployment, and as demonstrated by Ireland, can have positive effects on market confidence, on the perception of performance, and put Greece on a more plausible path to an early restoration of market access."
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