The democratic deficit

SO THE IMF thinks Greek debt is unsustainable. But it has not offered to take a hit on its own holdings. After all, the IMF is a senior creditor; its reputation depends on getting paid. Yesterday, Mario Draghi, the ECB president, said it was

uncontroversial that debt relief is necessary

while simultaneously expressing confidence the ECB will be repaid by Greece. So who should the Greeks default to? The taxpayers of Europe, of course, the very people who were promised that such a thing could not happen. As pointed out in my last post, this would be an odd interpretation of democracy.

Some of these problems arise from the way that the crisis was dealt with. Central banks acted quickly to try and deal with the liquidity crisis of 2008; the EU set up the EFSF and the ESM as a way of dealing with the fiscal crises of its weaker members; the IMF was brought in as a body with experience of "enforcing" conditional loan programmes. None of these bodies have direct democratic legitimacy; indeed it is their lack of democratic accountability that gives them freedom of action.

Writing in the FT today, Glenn Hutchins argued...Continue reading

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