IMF should reconsider its presence in the Greek bailout program
by Miguel Coelho and João Texeira
Since embarking in the first bailout program for Greece in 2010, the International Monetary Fund (IMF) has significantly lost its credibility. A series of miscalculations and wrong forecasts have damaged its reputation, creating second thoughts on the role of the Fund in the Greek programs.
The second review of the third bailout deal has stuck, and the major reason for that is the bilateral struggle between the IMF and Germany over a number of financial issues and targets. The Fund wants lower primary surpluses in exchange for additional fiscal measures to secure the Greek program will run smoothly. In addition, it supports a generous debt restructure as Greece's public debt is considered unsustainable.
On the other side, Germany wants the Fund as sponsor in the Greek program, but without imposing its own terms. For Berlin, primary surpluses should be kept at 3.5% levels between 2018-28, considering that any deviation should be covered by a automatic fiscal stabilization mechanism, i.e. by further cuts in a number of public finance areas, such as pensions, wages and the non-taxed threshold. Meanwhile, the German government does not consider Greece's debt as unsustainable and rules out any significant debt relief, as the IMF suggests.
On Thursday 26.1.17 the Eurogroup convenes to examine the progress that has been made in the negotiations between the Greek side and the creditors. For the former, there is actually nothing to add, as the Greek government has fulfilled its commitments - it now lies on the EU institutions to deliver their part, which is to conclude with the second review of the program and release the subsequent tranche for the Greek government to be able to pay arrears and keep up with the positive outcome of the fiscal policy.
The key question for the European institutions is to acknowledge whether keeping up with the IMF on board is beneficial for Greece and the cohesion of the monetary union and, thus, of Eurozone. IMF seems to be a destabilizing factor that creates confusion and collision among Eurozone member-states. After six years of solid experience in bailout programs, Eurozone must convince that it has the capacity and know-how to deal with its own issues collectively, without any external "patron". Essentially, it has to prove that it can overcome the financial crisis successfully, and avoid getting trapped into the same, devastating vicious circle.
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Miguel Coelho and João Texeira are Policy Analysts at Bridging Europe.
January 23, 2017