Financial Times
July 19, 2011
And so the circus moves on. On Thursday the eurozone authorities, for want of a better term, will be meeting in Brussels for the thousandth iteration of their response to the Greek crisis.
The run-up to the summit, which was supposed to design a second and much larger bail-out for Greece, has been sadly typical of Europe’s shambolic and convoluted policy process. The European Central Bank has continued a high-volume but confused row with the eurozone finance ministers about writing down Greek sovereign debt and what does or does not constitute a default.
Watching, with a mixture of resignation and despair, is the institution that parachuted on to the battlefield at the beginning of the bail-out in May 2010, the International Monetary Fund. Anyone who still believes that the IMF is an organisation of sinister omnipotence should take a look at its current situation – and start to think, as some in Washington are, about how the IMF can disengage from a situation where the risk to its reputation is beginning to outweigh the benefit from its presence.
It was a good idea for the IMF to get involved in Greece. That it did reflects the diplomatic skills of its now departed managing director, Dominique Strauss-Kahn. Its participation meant overcoming resistance from truculent Europeans including Jean-Claude Trichet, ECB president, who wanted to sort out the problem themselves.
The IMF brought expertise, credibility and cheap lending. Reasonable people – a category that on this occasion probably even includes most economists – will argue that right from the beginning, Greece was never likely to turn round its public finances without a debt restructuring. But restructuring or no, Greece still needed to turn a primary fiscal deficit into a surplus, and was always likely to find that easier when supported by the IMF.
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