IMF - John Lipsky, the acting managing director of the International Monetary Fund, has taken a tougher approach than his predecessor, Dominique Strauss-Kahn. Photograph: Aleofficials and diplomats in Brussels confirmed that the IMF threat to pull the plug on its funding – in stark contrast to the more emollient line of Strauss-Kahn – had been defused because of a German climbdown. As political turmoil continued in Greece on Thursday, with the prime minister, George Papandreou, scrambling to form a new government, the stage was being set for a political struggle between Europe's powerbrokers over the fine print of the proposed new €100bn-plus rescue of Greece. Berlin is deeply at odds with France and with the key EU institutions – the European Central Bank (ECB), the European commission, the presidency of the EU and the head of the eurozone, Jean-Claude Juncker, prime minister of Luxembourg – over the terms of a new deal. Germany was forced to agree to bail out Greece for the second time in a year under strong pressure from the International Monetary Fund following the resignation last month of its head, Dominique Strauss-Kahn, the Guardian has learned. Under its acting chief, the American John Lipsky, the IMF has taken a more hardline stance and it warned the Germans in recent weeks that it would withhold urgently needed funds and trigger a Greek sovereign default unless Berlin stopped delaying and pledged firmly that it would come to Greece's rescue.
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Friday, June 17, 2011
IMF - John Lipsky, the acting managing director of the International Monetary Fund, has taken a tougher approach than his predecessor, Dominique Strauss-Kahn. Photograph: Aleofficials and diplomats in Brussels confirmed that the IMF threat to pull the plug on its funding – in stark contrast to the more emollient line of Strauss-Kahn – had been defused because of a German climbdown. As political turmoil continued in Greece on Thursday, with the prime minister, George Papandreou, scrambling to form a new government, the stage was being set for a political struggle between Europe's powerbrokers over the fine print of the proposed new €100bn-plus rescue of Greece. Berlin is deeply at odds with France and with the key EU institutions – the European Central Bank (ECB), the European commission, the presidency of the EU and the head of the eurozone, Jean-Claude Juncker, prime minister of Luxembourg – over the terms of a new deal. Germany was forced to agree to bail out Greece for the second time in a year under strong pressure from the International Monetary Fund following the resignation last month of its head, Dominique Strauss-Kahn, the Guardian has learned. Under its acting chief, the American John Lipsky, the IMF has taken a more hardline stance and it warned the Germans in recent weeks that it would withhold urgently needed funds and trigger a Greek sovereign default unless Berlin stopped delaying and pledged firmly that it would come to Greece's rescue.
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It was IMF concerns about Greece's funding shortfalls that brought the issue to a head in the first place. It had been evident for some time that last year's €110 billion rescue package from other euro-zone members and the IMF wouldn't be enough to carry Greece into 2013, because there was no prospect of the government regaining access to bond markets and because it missed its budget-cutting targets.
Dealing with the shortfall could have been put off for later in the year—until the IMF weighed in and told governments that it needed to be sure that Greece would have access to funding for 12 months before it would agree to the release of any more bailout money. That required a pledge from Germany and other members of the euro zone of yet more money for Greece.
Germany and its allies balked at finding all the money Athens requires. Greece's financing needs will reach about €145 billion in the next three years, according to IMF estimates, and €64 billion of that would just go straight out again to pay off holders of government bonds maturing by mid-2014.
Berlin's solution: Get the private sector to "participate" in the second bailout by agreeing to delay their bond repayments. The proposal is adamantly opposed by the European Central Bank, fearing, among other things, contagion to other parts of the euro zone, and countries like France. Cue market uncertainty, intensifying fears of a Greek default and a retreat from riskier assets around the world.
The stand-off between the two sides prevails, even now. Faced with this mutual intransigence, the IMF, seeking to avoid a payments crisis next month, looks as if it will accept a general statement of support for Greece from the euro zone. Its board will then give the nod, assuming no last-minute revolt, to release the €12 billion.
This would merely put off the fateful day for a few months at most. The conundrum endures: If Germany prevails with its private-sector proposals, Greece goes into default; and if the ECB and France win, the official bailout bill mounts to politically explosive levels. And now the Greeks, from the receiving end, are signaling there's a limit to how much more they can take.
But there is another institution with a dog in this fight: the IMF. And the Greek program is already generating deep discomfort at the organization's H Street headquarters in Washington.
The IMF's €30 billion contribution to the bailout was huge by the fund's normal standards. IMF loans are calculated as a percentage of a country's quota, effectively its shareholding in the fund and reflecting very roughly its economic weight, and Greece got a loan of more than 3,000% of its quota.
That percentage is already about twice that of any previous IMF lending program, and way above most normal fund loans. Now the IMF is being sucked into discussions about the second Greek bailout. Depending on whether Germany wins or loses the private-sector participation argument, that would require an additional €90 billion to €145 billion in new bailout loans. If the IMF continues to provide almost a third of the funds, as it has in the first bailout, it suggests Greece's IMF loans would grow to 6,000% of its quota or more.
The IMF can do it, if its political masters want it to. But will they? To lend money, the IMF's rules say that financing must be secure for the next 12 months. The IMF is already stretching on this point, as we pointed out.
A final factor is the spectacle offered by European governments to the world. They expect the IMF to risk its funds and credibility to support them in Greece and elsewhere in the euro zone, but they can't figure out among themselves what they should be doing. The rest of the world, says one fund insider, is awaiting "big signals from Europe."
ATHENS—Greece shook global markets, intensifying fears of a default, as tens of thousands of demonstrators protested a new round of budget-cutting plans and its prime minister offered to step down to try to preserve them.
Protests across the capital sometimes turned violent as Prime Minister George Papandreou sought an agreement with opposition parties on austerity measures demanded as the price of a new bailout by euro-zone nations and the International Monetary Fund.
When his offer to step down in favor of a unity government failed, he instead announced in a late-night televised address that he would reorganize his cabinet Thursday and then call for a vote of confidence in Parliament.
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