Troika may survive

Shortly after the left-wing Syriza party led by Alexis Tsipras won elections in Greece last month on a pledge to ease austerity and renegotiate the country's gargantuan debt burden, the new administration grabbed headlines by declaring that it would no longer cooperate with inspectors sent by the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) to enforce harsh austerity measures.

"The troika has two different levels: one is the troika of institutions, which of course we are very keen to discuss with. But there are representatives here in Greece whose purpose is to enforce and oversee the implementation of a program which, in our view, has completely and utterly failed," said finance minister Yanis Varoufakis, in a recent interview with the BBC.

Varoufakis' announcement of non-cooperation with the troika's inspectors ruffled feathers in several European capitals, particularly in Berlin. Although Chancellor Angela Merkel has so far refused to comment publicly on the issue, she has reportedly assured German lawmakers that monitoring of Greece's austerity and reform programs by the troika would not be scrapped.

Resentment

Alexander Graf Lambsdorff, a German member of the European Parliament, says the troika's task is to monitor whether debtor countries are adhering to their commitments. "This was successfully done in Portugal, Ireland and Spain," he said. "It's wrong to scrap the troika for Greece, as the country continues to be in a crisis and needs help."

The controversy surrounding the role played by the troika in the eurozone's crisis-stricken countries is far from a new phenomenon. The body came to life after knock-on effects of the post-2008 global economic crisis forced governments of euro area countries such as Greece, Ireland and Portugal to seek financing help from their international partners. In return for bailout funds, the lenders demanded austerity measures and structural reforms - the implementation of which was to be monitored by troika representatives.

However, this amounted to unelected officials appointed by creditor institutions dictating terms to democratically-elected governments - including harsh measures that resulted in deep cuts in wages and benefits, large-scale job losses, and reduced spending on public services and infrastructure. That led to deep public discontent in the debtor countries. Protests broke out every time troika teams flew in to make their inspections.

Members of the troika argue that the real decision-making power on aid programs and bailouts rests with the Eurogroup – the club of eurozone finance ministers. It is this group which has to give its approval to each bailout package. Still, the ministers base their decisions on financial forecasts and economic assessments provided by the troika.

Mistakes

And the economic scenarios presented by the members of the troika have so far not generally been accurate, stoking further criticism directed at them. The IMF, for instance, admitted in an internal report in early 2013 that it had underestimated the impact of austerity policies on the Greek economy due to its wrong economic forecasts.

"The troika has, according to its own yardsticks, failed to deliver what has been promised," said Sven Giegold, a Member of European Parliament from Germany's Green Party. "While unemployment and cumulative debts have risen fast everywhere in these troubled countries, economic growth has failed to pick up."

But Ansgar Belke, economics professor at the University of Duisburg-Essen and member of the European Parliament's Monetary Experts Panel, doesn't share this view. He doesn't see the troika's demands for austerity and structural reforms as a problem, noting that Greece in 2014 finally returned to modest growth as a result of these steps - albeit after its economy shrank by fully 25% in the preceding years, so it will take many years just to return the economy to its pre-crash size.

"The economy is expanding again, and there has also been a rise in exports, which are crucial for the sustainability of the debt situation in Greece," Belke told DW optimistically.

But besides the issues of democratic deficit and policy missteps, the troika has also confronted another challenge in the form of the differing mandates of its three constituent institutions.

The IMF is accused of a democratic deficit because it is immune to any oversight by the EU Parliament. The ECB is also largely unaccountable to elected officials, owing to the doctrine of 'central bank independence'.

Moreover, it holds Greek government bonds - which generates a conflict of interest: On the one hand, the ECB is responsible for the eurozone's monetary policy. And on the other, it has negotiated reform measures with Greece and accepted worthless Greek government bonds as collateral. "This involvement of the ECB harms the central bank's reputation and compromises its independence," says economist Belke.

Moreover, Belke added: "The troika has outlived itself." After the exit of the other crisis countries from their bailout programs, the troika is now responsible only for the programs in Cyprus and Greece, the economist said, indicating that "it will no longer be necessary for overseeing new aid programs."

Alternatives

Belke believes the tasks performed by the troika may be taken over by other existing bodies such as the European Stability Mechanism (ESM), the European Union's permanent financial firewall, which is under the European Parliament's oversight

The ESM could be turned into a European Monetary Fund, the economist said. However, he cautioned that it could take a long time for that to happen, as such a step would require changes to existing ESM treaties, and ratification by parliaments of EU member states.

In the short- to medium term, however, analyst Belke believes politicians are likely to reach some sort of compromise in relation to Greece.

"If Greek PM Tsipras realizes that he has no other options than what his predecessor Antonis Samaras had, and then he agrees to an extension of the bailout program under softened conditions, the influence exercised by the IMF and the ECB could be pushed back a little," Belke said. But the economist added that the troika will probably still remain in charge of Greece's economic fortunes for the near term.