New Greek bailout finds IMF in a political bind

Washington / AFP

Ever since the IMF participated in the first Greek bailout six years ago, the stinging suspicion has been that the Fund is under Europe’s thumb.
Now the International Monetary Fund is again under pressure to come to the aid of Athens, providing likely fodder for critics.
Europe forged an 86 billion euro ($96 billion) aid package for Greece last year and powerful EU members are insisting that the IMF chip in.
So far, the Fund, which did participate in the two prior Greek rescue efforts, is resisting, calling on Greece to commit to reforms and on Brussels to reduce Greece’s debt load.

But for how much longer?
According to a withering internal audit report published Thursday, the IMF in 2010 did indeed cave to the Europeans by generously bailing out Greece in violation of the Fund’s own internal rules and despite doubts about Greece’s creditworthiness.
The controversial decision undermined the Fund’s credibility and outraged some developing countries, which decried what they saw as preferential treatment.
In some ways, the situation is different in 2016.
Fears of Greek collapse have ebbed even though a recession has dragged on. The euro zone, which now has its own emergency fund, does not need the IMF’s money so much as its expertise in evaluating reforms.

Enormous pressure
But the pressure remains.
Germany has stated in black and white that IMF participation in the bailout is a condition for its own and it sees little room for discussion.
Toward the end of last year, France also said it harbored “no doubt” that the Fund would contribute.
“Everybody knows that we were under enormous pressure from the Europeans last summer to have a program together,” said an IMF official who requested anonymity.
“Everybody knows that we were under significant pressure again a few months ago.”
The IMF can scarcely ignore Europe. Its members together hold the largest voting bloc on the Executive Board, the body which approves bailouts. The United States is still the single-largest member.
The result is a complex equation for the Fund, which has pledged to make a decision before the end of the year. If it bails Greece out again, some will surely see Europe’s hand pulling the strings.
But if it abstains, the Fund may appear to suggest the bailout is doomed to fail.
“That’s the conundrum they face,” Peter Doyle, a former official in the IMF’s European Department, said.
“If they go along they look like they’re caving in; if they reject, it means that they could potentially be raising new big alarms.”
With its nerves already frayed by Brexit, Europe can still hardly afford a new, large-scale Greek crisis.
This latest dilemma could still offer the IMF a means of proclaiming its independence from the member countries.
“There’s a need for them to rebuild their credibility,” Desmond Lachman, a former European Department official, said. “By staying out of Greece, they could tell the rest of the world ‘we’ve realized that we were politically used.'”
Doyle does not believe the IMF can be truly independent, saying the United States and Europe will still call the shots.
“That’s only what matters and that has always been the case,” said Doyle, who left the Fund in 2012.
At the center of the drama and after six years of recession, Greece has seized on the latest controversy to make its views known.
“The IMF has been neither useful nor needed in Europe,” said Olga Gerovassili, a government spokeswoman.