The IMF Wants a Less Toxic Greek Programme

Everyone agrees that a debt currently standing at 170% of its GDP and expected to reach 200% over the next two years is not sustainable, except maybe for Japan. But, Greece is not Japan. Acting upon the obvious is not a straightforward exercise. And when it comes to Greece, the IMF is not putting its money where its mouth is. Greece should reform and the IMF is willing to supervise the affair, but not add to the pot of money put forth by the creditors; debt restructuring must take place, or at least re-profiling, but not on its own portfolio. In sum, the Greek programme is not institutionally and politically viable, but this is a problem to be dealt with in Brussels, not Washington.

According to the Financial Times, the IMF will not be joining the third Greek bailout as a creditor, it was announced yesterday, because Athens has a poor record of implementation. Not "for the moment,” that is. The Fund will make a final decision within months, perhaps even a year, on whether to commit its € 16 bn share of the overall €86 bn bailout program.

The original July 13 agreement envisioned the emergence of a quarter, adding to the original creditor’s Troika – the IMF, the European Commission, European Central Bank – one more "institution,” that is, the European Stability Mechanism. The IMF does indeed participate on staff level meetings in Athens. But, the significance of the Fund is primarily political at this stage. The IMF’s intrusive monitoring experience and its mandate to demand reforms without direct political accountability make it paradoxically a sine qua non member of the Troika-Institutions-Quartet for Germany. In fact, it is said that the Bundestag would hardly sing on to a deal without the IMF on board.

Earlier in July, the German Finance Minister, Wolfgang Schaeuble, said that "a haircut” – on which the IMF insists – is not a step would not be compatible with membership of the currency union. And although in principle the German Finance Minister concurs that the Greek debt is not sustainable, he insists that debt relief presupposes exit from the Euro. Be this as it may, "re-profiling” rather than haircut must precede the IMF’s participation in the third Greek programme, as IMF insists own its own rules, which dictate that the Fund will not engage if the debt of a country is not sustainable. The stated objective of the second and – presumably the third bailout programme – was Greece’s return to private debt markets. This objective is now thought unattainable.

The former Greek Finance, Yianis Varoufakis, warned that in fact both the IMF and Wolfgang Schaeuble would eventually want to derail the original bailout framework agreement. On the one hand, the IMF faces objections from non-European board members from Asia to Latin America. Now that Grexit is not considered to carry high systemic risk, the objections to engagement are increasingly vocal: no contagion, no money.