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Obama on Greece: End Austerity Now

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Greek Prime Minister, Antonis Samaras, arrived in Washington on an official visit this past Thursday where he was warmly greeted by President Barack Obama. What emerged from their discussions is that Washington is firmly behind Greece's ongoing efforts to return to economic health but that it is time the European policy of austerity be replaced by one that emphasizes economic growth and job creation. In a clear message to Germany's Chancellor, Angela Merkel, the American president intoned that austerity must not be looked upon by the EU as the only possible solution but, rather, that economic development should be regarded as the path to be followed to enable countries to decrease their fiscal deficits.

Mr. Obama has every reason to hope that Greece soon emerges from the vicious four-year recession that has wiped out a quarter of the country's GDP and has seen the unemployment rate approach 30 percent as the financial turmoil that has resulted is viewed by his advisers as a threat to the fragile U.S. economic recovery and the overall global economic system as a whole.

The president looks to be in accord with a recent IMF report on the situation that calls on the eurozone to quickly solve the issue of Greece's financing gap for 2014 and to expedite the package of relief measures that have been promised. In its review, the IMF acknowledges the progress made by the Greek nation but also criticizes the country for long delays in proposed reforms. It stresses that the government must move quickly with its tax assessment mechanism as a failure there-in will result in painful spending cuts next year and that the financing gap, estimated at 4.4 billion euros in 2014 and 6.5 billion euros in 2105, must be decisively addressed by the eurozone at its upcoming summit this September. As for Greece's debt load, the IMF does not doubt its viability but it urges the Europeans to commit to additional relief measures for the country and to implement them at a faster pace.

The picture that has developed in the aftermath of the Prime Minister's trip is one of a clash of opinions and positions between the IMF and the European Union, as represented by Germany and her northern neighbors. With, on the one hand, the IMF pushing for another dramatic haircut to put an end to the fragility surrounding Greece's debt and Berlin, on the other, refusing to discuss any such scenario ahead of German elections due this fall.

The German Finance Minister, Wolfgang Schauble, recently rejected IMF estimates that a new haircut for Greece was necessary, stressing that "there is no such commitment on the part of the eurozone because this is merely the IMF's interpretation." Speaking in front of the Budget Committee of the German parliament, Mr. Schauble assured its members that that there would be no new write-off of Greek debt and that no such commitment had been made to Greece by the eurozone members.

Regardless, the opinions and editorials with respect to the IMF report on Greece have been widespread in the German media. According to Deutsche Welle, Germany's international broadcaster, the evaluation was an attempt by the fund to restore its credibility and reputation which took a blow when the IMF deviated from its rules in order to participate in the Greek bailout while economist Megan Green of Maverick Intelligence noted that "the rescue program did not bring the expected results and the IMF is trying to blame this failure on the other players."

Der Spiegel, the influential German weekly news magazine, outlined that the objective of the report was to intensify pressure on the European partners to agree to a further haircut for Greece whereas the major German regional paper, Rheinische Post, intoned that "the criticism of the IMF is due to the increasing nervousness of the self-proclaimed rescuers while the time is fast approaching when a new haircut of the Greek debt will become inevitable."

Proclaimed Tagesspiegel, the liberal German daily newspaper, "the rescuers have failed as they limited themselves to the imposition of austerity measures in Athens and the reduction of the risk for the euro while forgetting the prospect for the Greek people."

President Obama's message, delivered along these very same lines, was that the policy of austerity in Greece must come to an end, that a program of economic development fostering growth and job creation must be implemented and that the country's debt must be swiftly dealt with, one way or another, by its European partners.