October 26, 2016

Indecision makes Europeans doubt IMF role in Greek deal

nternational Monetary Fund (IMF) Managing Director Christine Lagarde speaks at a refugee crisis panel in advance of the IMF/World Bank spring meetings in Washington April 13, 2016

Another sleepless night in Brussels before another debt deal with Greece. So far, so routine in the eurozone crisis.

But for once it was not high-stakes calls to Athens that kept Europe’s finance ministers up into the early hours. This time they were kept waiting for IMF officials to yield after months of wrangling with Greece’s eurozone creditors over the Fund’s demands that the Europeans give Athens debt relief.

The wait ended when absent International Monetary Fund chief Christine Lagarde was reached on the phone as she travelled in Asia by her representatives in the room at the European Council’s headquarters in Brussels.

But the signs of indecision in the IMF have prompted questions among EU officials about the Washington-based Fund’s commitment to rejoining their bailout for Greece, and about whether it is worth working with it in future.

Even Finnish Finance Minister Alexander Stubb, an ally of Germany in insisting on an IMF role as a guarantor for northern European voters that the Greeks will not squander their money, wondered out loud this week whether the eurozone should keep trying to get the Fund involved again “at any price”.

Questions about the IMF’s engagement were raised by about a dozen senior officials in private conversations with Reuters since the agreement was reached.

At 2 am on Wednesday, Dutch Finance Minister Jeroen Dijsselbloem presented a “breakthrough” deal under which the eurozone agreed to criteria for granting Greece relief on what it owes them in 2018. Poul Thomsen, the IMF’s director for Europe, pledged to seek IMF board approval for resuming its role in the bailout.

The agreement ended almost a year of Transatlantic argument in which Prime Minister Alexis Tsipras’s cash-strapped government has often been little more than a spectator.

The IMF says Athens’s debt burden is unsustainable and refused to be part of a third bailout package agreed by the eurozone in August unless the Europeans – not the Fund itself – rescheduled some of their loans. Some Europeans, led by veteran German Finance Minister Wolfgang Schaeuble, refused.

Schaeuble says Athens can survive for now and may be in a better position to pay in the future, and that writing off its debts would create a “moral hazard” that could undermine confidence.

During the negotiations this week, eurozone officials said they were startled by what they saw as unusually intense and difficult conversations among Thomsen and other IMF officials, and notably by the way in which the Dane had to wait for hours to reach Lagarde before finally accepting the accord.

“It seemed the IMF couldn’t agree on a common position among themselves,” said a senior eurozone official, who noted the Fund’s top lawyer had flown in from Washington to vet the deal.

IMF officials said the delay was largely a matter of the logistics in reaching Lagarde, a former French finance minister, who was visiting Kazakhstan before going to the Group of Seven summit in Japan. Nor was it unusual to wait for her green light.

Another European official said Thomsen seemed “frustrated” during a final 10-minute call he made to Lagarde from a corridor outside the meeting room. He was heard saying the Fund should not agree but seemed to lose the argument, the EU official said.

IMF spokesman Gerry Rice dismissed that interpretation: “The suggestion of ‘overruling’ is nonsense,” he said. “The parameters of our negotiation positions are, as always, discussed and agreed in advance.”

A final call was “typical in such cases”, Rice added: “The managing director fully backed Poul’s position.”

Whatever the reasons for the delay, Schaeuble, who has been insistent that the IMF be involved in order for him to persuade hawkish German lawmakers to give their blessing to the bailout, made no secret of his irritation with the Fund’s behaviour.

“It might have been helpful if the managing director had been here,” he told reporters, noting that it was Berlin, not the IMF, which was the main creditor to Athens.

A key eurozone argument in seeking a less dogmatic line from the IMF on debt relief than the Fund applies in other cases is that unlike most of the IMF’s debtors, Greece can count on the eurozone to avert bankruptcy. For that reason, Europeans say, the Fund should worry less about seeing IMF loans repaid or the sustainability of Athens’ debt in the long term and accept the role of fiscal overseer that Berlin wants it to play.

How far the Fund has accepted that position remains a question for the Europeans. Some IMF officials have briefed reporters since the deal that it will still require conditions to be met before the board will agree to lend Greece more.

Against that, several eurozone officials told Reuters that whatever the Fund’s functionaries might think, the top-level political commitment given by its boss, demonstrated in the late-night call, was proof that it was on board.

“She is the real power player here,” one European said.

Several EU officials believed the deal was essentially in the bag before the Eurogroup met on Tuesday – when Lagarde met Schaeuble, Eurogroup President Dijsselbloem and French Finance Minister Michel Sapin at a G7 meeting in Japan last weekend.

That explained why Schaeuble had been so irritated by what he saw as Thomsen’s hesitation past midnight.

Another eurozone official said: “I’m confident the IMF will be on board. There still needs to be an intensive discussion of possible measures later this autumn, before they join.

“But that should be OK.”

Some Europeans also said, however, that it may be no great problem if the much sought after IMF return to the bailout falls through, and certainly even Germany may be less insistent on keeping the uncooperative Fund involved in any future bailout.

A eurozone official said: “The whole experience over the last 12 months with the IMF and Greece has diminished backing for having the IMF involved even in such traditional supporters like Germany, the Netherlands or Finland.”

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