IMF spring meetings: Greece, oil, and the post-Ebola economic crisis | News | DW | 19.04.2015
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IMF spring meetings: Greece, oil, and the post-Ebola economic crisis

Doubts over Greece, a golden opportunity for the climate in cheap oil, and getting back to growth after Ebola. Richard Walker reports on three big stories from the IMF and World Bank spring summit in Washington.

This year's meetings came at yet another testing moment for Greece and the eurozone. With its coffers running perilously dry, Athens was engaged in what looked like a game of chicken with its creditors. The new government led by the left-wing Syriza party was holding out against harsh reforms it says would betray its mandate. Its creditors, led by Germany, were determined not to release funds without those reforms. Failure to find a deal could lead to default - perhaps even a Greek exit from the eurozone.

The meetings got off to a bad start for Greece when IMF chief Christine Lagarde rejected a delay in a looming loan repayment. But that didn't stop Greece's Finance Minister Yanis Varoufakis taking his case to anyone who would listen, including Barack Obama.

Varoufakis managed to win an informal encounter with the US president on the sidelines of a White House reception for Greek Independence Day - no small achievement given that on the very same day, Obama's spokesman had said the two men would not meet.

USA Yanis Varoufakis in Washington

Varoufakis got his private audience with the US president

Little detail emerged from that exchange; reports in the Greek media said Varoufakis urged Obama to press European leaders to find a solution. But in public, the US was putting just as much pressure on Greece. Treasury Secretary Jacob Lew warned, "Failure to reach an agreement would lead to immediate hardship in Greece and increased uncertainties for Europe and the global economy."

Draghi repeats pledge to the euro

The greatest uncertainty of all is whether Greece can remain in the eurozone, or whether 2015 will be the year of "Grexit." That would directly undermine a pledge by ECB president Mario Draghi that helped keep the euro together at the peak of the crisis in 2012. At the time, Draghi told reporters, "There is no going back to the lira or the drachma or to any other currency. It is pointless to bet against the euro. It is pointless to go short on the euro… It is pointless because the euro will stay and it is irreversible."

With a return to the drachma in Greece now a real possibility, could Draghi repeat the same pledge today? DW posed that question to him at his closing IMF press conference. He replied, "Yes exactly, all the same. It's pointless to go short on the euro. Do it! So I'll say exactly the same words today."

It was a hint of Dirty Harry: make my day, just try shorting the euro. But as news of Draghi's reaffirmed pledge spread on social media, a seasoned market watcher in Germany pointed out in a tweet that speculators were already doing exactly that.

Grexit or no Grexit, few doubt that Greece will be back on the agenda when the IMF and World Bank gather again this October in Peru.

Winners, losers, and a golden opportunity

One bright spot for the eurozone is the dramatic fall in the price of oil and other commodities. But there are winners and losers. Some key losers are in Africa, where commodities were the top driver of growth for the past 20 years.

But this could be a unique opportunity too. Many developing countries subsidize gasoline and other fossil fuels to make them more affordable for consumers - subsidies that cost over $500 billion (460 billion euros) per year according to the International Institute for Sustainable Development (IISD). That's four times as much as the subsidies for clean, renewable energy.

The IISD and eight governments taking part in the spring meeting said this would be the best moment to end those subsidies - when unsubsidized prices are low enough for consumers to bear. They argue this would enable cash-strapped governments to use that money much more productively.

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Draghi responds to a question from DW's Richard Walker

But the key is to act fast - before prices start to rise again. "It's absolutely vital," said New Zealand's Climate Change Minister Tim Groser, a leading member of the initiative. He told DW, "When the prices were high, we started seeing massive recognition on the part of developing countries just what a crippling burden this was putting on them… in the most extreme case - 20 percent of their GDP on subsidizing fossil fuels."

Groser added that many governments will need to soften the blow for the poorest consumers with targeted assistance. But overall, he thinks this is a win-win for developing countries and the fight against climate change: "I think we're on the cusp of a very important systemic change. The past is fossil fuel subsidies, the future is to get rid of them and start pricing carbon, not subsidizing carbon."

Emerging from the Ebola crisis

Subsidies or no subsidies, the fall in commodities prices is posing a challenge to recovery in Sierra Leone, one of the three countries hardest hit by the Ebola outbreak that began last year. Sierra Leone's biggest export is iron ore; prices have collapsed by around 60 percent in the past twelve months. The World Bank predicts its economy will contract by a dramatic 20 percent this year.

With new Ebola infections finally approaching zero, helping the economies of Sierra Leone, Liberia and Guinea to return to growth was the focus of a high-level meeting of the heads of the World Bank and IMF alongside the UN secretary general and the presidents of all three countries. The World Bank announced $650m in new funding aimed at strengthening their healthcare systems and other priorities.

Mario Draghi vor dem Wirtschafts- und Währungsausschuss

Draghi repeated his euro pledge

But few doubt that more is needed. Liberia's president Ellen Johnson Sirleaf called for the cancellation of the three countries' foreign debt, saying, "Is this asking too much? We say no." The president of the African Development Bank Donald Kaberuka encouraged creditors to help, saying, "It's not a lot of money and we can afford it."

But Kaberuka insisted it was also crucial to face up to past failures. "We are today running after a problem which was easily manageable… As we speak about supporting these countries, somebody must be thinking about how to fix the international system of disaster response, because we don't know what will be the next epidemic."

That will add to the pressure on the World Health Organization, which has been widely criticized for its response to the outbreak. Aid group Oxfam sees the need for sweeping change. Shannon Scribner, Ebola campaign lead for Oxfam America, told DW: "The World Health Organization has a global remit, and yet it has a third of the budget of the [US] Center for Disease Control… It is up to the WHO to first of all look at what went wrong, how they can improve the response. But it's also up to the executive board and member states to be more proactive in strengthening the WHO."

The WHO has admitted to shortcomings and is proposing reforms. In the meantime delegates from the region expressed relief that Ebola is receding - not just as a health emergency, but as the subject of myopic attention by the global media. As one delegate said: now it's time to get back to growth.

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