LESSONS FROM THE IMF’S BAILOUT OF GREECE HEARING BEFORE THE SUBCOMMITTEE ON MONETARY POLICY AND TRADE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION MAY 18, 2017 Printed for the use of the Committee on Financial Services Serial No. 115–20 ( U.S. GOVERNMENT PUBLISHING OFFICE 27–420 PDF WASHINGTON : 2018 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 19:11 Apr 04, 2018 Jkt 027420 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\27420.TXT TERI HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. MCHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELA´ ZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia STEVE STIVERS, Ohio AL GREEN, Texas RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota ANN WAGNER, Missouri ED PERLMUTTER, Colorado ANDY BARR, Kentucky JAMES A. HIMES, Connecticut KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio MIA LOVE, Utah DENNY HECK, Washington FRENCH HILL, Arkansas JUAN VARGAS, California TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas DAVID A. TROTT, Michigan CHARLIE CRIST, Florida BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada ALEXANDER X. MOONEY, West Virginia THOMAS MacARTHUR, New Jersey WARREN DAVIDSON, Ohio TED BUDD, North Carolina DAVID KUSTOFF, Tennessee CLAUDIA TENNEY, New York TREY HOLLINGSWORTH, Indiana KIRSTEN SUTTON MORK, Staff Director (II) VerDate Nov 24 2008 19:11 Apr 04, 2018 Jkt 027420 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\27420.TXT TERI SUBCOMMITTEE ON MONETARY POLICY AND TRADE ANDY BARR, Kentucky, Chairman ROGER WILLIAMS, Texas, Vice Chairman GWEN MOORE, Wisconsin, Ranking Member FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York BILL HUIZENGA, Michigan BILL FOSTER, Illinois ROBERT PITTENGER, North Carolina BRAD SHERMAN, California MIA LOVE, Utah AL GREEN, Texas FRENCH HILL, Arkansas DENNY HECK, Washington TOM EMMER, Minnesota DANIEL T. KILDEE, Michigan ALEXANDER X. MOONEY, West Virginia JUAN VARGAS, California WARREN DAVIDSON, Ohio CHARLIE CRIST, Florida CLAUDIA TENNEY, New York TREY HOLLINGSWORTH, Indiana (III) VerDate Nov 24 2008 19:11 Apr 04, 2018 Jkt 027420 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\27420.TXT TERI VerDate Nov 24 2008 19:11 Apr 04, 2018 Jkt 027420 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\27420.TXT TERI C O N T E N T S Page Hearing held on: May 18, 2017 ..................................................................................................... 1 Appendix: May 18, 2017 ..................................................................................................... 33 WITNESSES THURSDAY, MAY 18, 2017 Blustein, Paul, Senior Fellow, Centre for International Governance Innova- tion ........................................................................................................................ 4 Gelpern, Anna, Professor of Law, Georgetown University Law Center, and Non-Resident Senior fellow, Peter G. Peterson Institute for International Economics ............................................................................................................. 8 Lundsager, Meg, Public Policy Fellow, Woodrow wilson International Center for Scholars ........................................................................................................... 6 Nelson, Rebecca M., Specialist in International Trade and Finance, Congres- sional Research Service ....................................................................................... 9 APPENDIX Prepared statements: Blustein, Paul ................................................................................................... 34 Gelpern, Anna ................................................................................................... 58 Lundsager, Meg ................................................................................................ 88 Nelson, Rebecca M. ........................................................................................... 96 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Barr, Hon. Andy: ‘‘German Conservative Euro-MP Breaks Ranks Over IMF Role in Greek Bailout,’’ dated February 16, 2017 .............................................................. 106 ‘‘German SPD Says Europe Can Back Athens Without the IMF,’’ dated January 19, 2017 .......................................................................................... 108 ‘‘Germany Denies Devising Greek Rescue Plan Without IMF,’’ dated Jan- uary 18, 2017 ................................................................................................. 110 ‘‘Commentary: The IMF Must Walk Away From Greece,’’ by Meg Lundsager, dated May 17, 2016 .................................................................. 112 ‘‘The IMF Should Get Out of Greece,’’ dated February 3, 2017 .................... 115 ‘‘Alexis Tsipras Pushes for IMF to Stay Out of Next Greek Bailout,’’ dated December 20, 2015 ............................................................................. 117 Davidson, Hon. Warren: Chart entitled, ‘‘Heavily-Indebted EU Nations’’ ............................................ 119 Chart entitled, ‘‘Greece Labor Force Participation Rate’’ .............................. 120 Hill, Hon. French: ‘‘Bailout Plan is All About ‘Rescuing Banks and Rich Greeks,’’’ dated May 18, 2010 ................................................................................................. 121 (V) VerDate Nov 24 2008 19:11 Apr 04, 2018 Jkt 027420 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 K:\DOCS\27420.TXT TERI VerDate Nov 24 2008 19:11 Apr 04, 2018 Jkt 027420 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 K:\DOCS\27420.TXT TERI LESSONS FROM THE IMF’S BAILOUT OF GREECE Thursday, May 18, 2017 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MONETARY POLICY AND TRADE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 10:04 a.m., in room 2128, Rayburn House Office Building, Hon. Andy Barr [chairman of the subcommittee] presiding. Members present: Representatives Barr, Williams, Huizenga, Hill, Davidson, Tenney, Hollingsworth; Moore, Foster, Kildee, Vargas, and Crist. Ex officio present: Representative Hensarling. Also present: Representative Maloney. Chairman BARR. The Subcommittee on Monetary Policy and Trade will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. Today’s hearing is entitled, ‘‘Lessons from the IMF’s Bailout of Greece.’’ I now recognize myself for 5 minutes to give an opening state- ment. This morning’s hearing, ‘‘Lessons from the IMF’s Bailout of Greece,’’ will examine the International Monetary Fund’s financial assistance to the country of Greece, one of the largest and most controversial rescues in the Fund’s history. Under normal access rules, the IMF had traditionally lent up to 200 percent of a country’s quota per year. When the eurozone crisis hit, the Fund in 2010 approved an exceptional access program for Greece worth 30 billion euros or 3,200 percent of quota to supple- ment the eurozone’s own contribution of 80 billion euros. In 2012, the Fund approved a second program worth over 2,000 percent of Greece’s quota with more than 18 billion euros in new money. Many observers, including on this committee, were critical of the Fund’s use of a so-called systemic exemption which was created in order for Greece to tap exceptional access lending. This exemption claimed that potential spillover effects from a Greek meltdown compelled the Fund to waive its requirement that a member’s debt be sustainable with a high probability before the Fund lent money. Thanks to pressure from Congress, the systemic exemption has since been repealed, but this shouldn’t obscure the fact that the (1) VerDate Nov 24 2008 19:11 Apr 04, 2018 Jkt 027420 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\27420.TXT TERI 2 Greek bailout has made a mockery of other IMF lending rules, too, as findings from the IMF’s own Evaluation Office have made clear. Despite receiving exceptional access, Greece remains mired in re- cession with youth unemployment approaching 50 percent. The IMF likes to speak of the catalytic role its financing can play in borrowing countries, but in Greece at least, the Fund’s resources have catalyzed nothing. Seven years after the IMF’s first program, Greece’s debt has worsened and is judged by the Fund as down- right unsustainable. Today, the eurozone has set up its own bailout fund, the Euro- pean Stability Mechanism, or ESM. It possesses more resources for just 19 eurozone countries to borrow than the IMF can deploy for the entire world. At the same time, Greek capacity remains as doubtful as