The times when the Troika of the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) could operate in the dark and on extralegal grounds seem almost over. The European Parliament just released its draft enquiry report on the role and operations of the Troika with regard to the euro area progamme countries. The report criticises the “generally weak accountability” of the Troika and the “lack of transparency” in negotiations with programme countries. The Parliament points out that there was no appropriate legal basis for setting up the Troika, and that the programme conditions did not pay respect to the Charter of Fundamental Rights of the European Union.
This report – welcomed by Eurodad – complements recent civil society initiatives to hold the Troika to account, for instance this website, TroikaWatch.
Limited accountability and transparency
The draft report is largely based on questionnaires that were sent out to the Troika institutions, to additional EU institutions such as the European Council and the Eurogroup, and to finance ministries and central banks of the four programme countries (Cyprus, Greece, Ireland, and Portugal).
The chosen methodology immediately unveiled accountability deficits: according to information obtained by the newspaper Handelsblatt, the IMF refused to fill it in, saying they are on principle not publicly accountable to parliaments. Similarly, Herman Van Rompuy responded that “as President of the European Council, I am not involved” – a finding in its own right as the Council represents the member states in the EU. The Eurogroup’s president Jeroen Dijsselbloem partially responded, saying “these [Troika] institutions and the programme countries themselves are best placed to answer many of your specific questions”. The European Commission and ECB in turn passed the buck to the Eurogroup, with the ECB commenting: “In terms of specific measures for specific countries, it would be more appropriate for the Eurogroup to respond”.
Troika conditionality – whose ownership?
A key area of concern for the European Parliament – as well as for many citizens – is who designed the conditions attached to the Troika’s financial assistance. These conditions went far beyond macroeconomic factors. The Parliament’s report points out that the programmes contained detailed conditions on social affairs such as “detailed prescriptions for health systems reform and expenditure cuts” in Greece, Ireland and Portugal. It explicitly “regrets that the programmes are not bound by the Charter of Fundamental Rights of the European Union and the Treaties”.
Economic conditions such as those imposed on Greece have contributed to the desolate state of its economy. The Greek finance minister reports in his response that unemployment is at record highs, GDP has dropped by 25%, and consequently the debt to GDP ratio turned out to be higher than anticipated in the adjustment models.
The bank bail-out conditionality imposed by the Troika on Ireland could also have repercussions. According to the – quite diplomatic – response of the Irish finance minister, 30% of the existing Irish debt ratio of 120% of GDP is due to the bank bail-outs. He writes that “the option now being seen at a European level – bailing-in the senior bondholders – was not available to the Irish authorities”, indicating that the Irish taxpayer was forced to pay the bill for their collapsed banking system. Crucially, the Irish Finance Minister adds that “I understand that the previous government sought to include senior bondholders in resolving banks in wind down … but this was prevented by the Troika”. The responses by the Commission and ECB confirm that avoiding contagion and spillovers to the rest of the Eurozone was one of the key factors that guided programme design and conditionality. This ensured that citizens in crisis countries paid a huge price for protecting Europe’s highly leveraged and overexposed banks.
On the crucial ownership issue, the Commission’s response is that “the ownership of the design of the programme belongs to the authorities of the Member State concerned”. The ECB seconds that “the respective government has ownership of, and responsibility for commitments, including all specific measures”. But the Member States concerned report that their policy space was limited. The Greek finance minister states that “given the inability of Greece to access capital markets, its bargaining power was de facto weak”. This is a dilemma which is well known from adjustment programmes in crisis-affected developing countries, where it is usually the IMF staff that determines the conditionalities, as previous Eurodad research pointed out.
The Troika – Legal or not?
The report confirms that “there was no appropriate legal basis for setting up the Troika on the basis of European primary law”. This is indirectly confirmed by the Commission when it writes that the “Troika model has been endorsed by the EU legislator (see Article 7 of Regulation (EU) N° 472/2013)”, which implies that before 2013 there was no such endorsement. All Troika programs except for Cyprus had been developed before that date.
The recommendations include making the Commission representatives in the Troika report regularly to the Parliament and amending Memoranda of Understandings with programme countries to include appropriate democratic accountability. However, the report does not specify what real accountability would mean in practice, and what concrete steps to take. The only reference in the paper to citizen participation beyond parliaments is the call to involve the “social partners” in decision-making processes on adjustment programs, a clear concession to European trade unions, but also to influential business associations in Europe.
A weakness is that – while acknowledging that the EU was unprepared for a larger sovereign debt crisis – it omits to demand urgently needed debt cancellation or a process to achieve that, such as a statutory insolvency regime. Other currency unions’ legislation, namely in the USA, provides a regime that makes an orderly debt workout for sub-union political entities possible. Instead, the Parliament just recommends to give the European Stability Mechanism the mandate to provide precautionary assistance, which would expand its menu of options to provide fresh liquidity to member states. This might be counter-productive in cases of clear insolvency of a Eurozone Member State – the insolvency regime remains a governance gap in Europe and elsewhere.
The most surprising recommendation is one that would essentially put an end to the Troika. The Parliament asks to evaluate “the mandatory involvement of the IMF in euro area financial assistance programmes” and to explore the option of creating a European Monetary Fund as an alternative to the IMF. There is, however, no reason to think that structural adjustment managed by European institutions without the IMF would not be worse. The responses by the European institutions indicate that the well-being of the ordinary European citizen is not at the centre of their considerations when decisions are made. Citizen participation, democratic control and effective safeguards for the vulnerable remain key areas to be addressed, with or without the IMF.
By Bodo Ellmers