Role for IMF After All?

News wires are reporting what could be a shift in the German position vis a vis Greece and the IMF. Until now, Germany had seemed to agree with other European officials-- including ECB's Trichet, Eurogroup's Junker, France's Sarkozy--that the IMF can provide technical advice, but this is a problem for the euro zone to resolve.

A financial spokesperson for the ruling CDU party, Michael Meister, is quoted on the news wires suggesting that only the IMF has the credibility and what he calls "instruments" to push help Greece get access to the capital markets if it was ultimately needed.

We have long argued that the main obstacle to the IMF's material involvement was the fear of loss of political face. And the realist says that in the face of economic necessity pride is among the first sacrifices. Having Greece go to the IMF, if (when?) needed, would avoid the thorny issue of European treaties and the political backlash that one can only imagine, for example, of the proverbial German worker postponing retirement to finance the earlier retirement of her Greek colleague.

On the other hand, it is not clear yet that this is in fact the new German strategy. It does seem clear that the political opposition to material assistance is great. Yet earlier today German Finance Minister Schaeuble was quoted along the conventional line that IMF involvement would signal the inability of the euro zone to address its own problems.

Bottom line---this could potentially be an important story, though it is difficult to know at this juncture whether it is a trial balloon or something more serious. As distasteful as a euro zone member going to the IMF may be, it may be the least costly political decision for the euro zone. Greece is a member of the IMF--(in a way that incidentally, California by contrast can never be). Until material aid is needed, this is just a theoretical discussion.

The negative implications for the euro stem from the potential disagreement in Europe, the weakening of the Franco-German pillar, and the institutional vacuum. This is the not stuff that a reserve asset is made.
Role for IMF After All? Role for IMF After All? Reviewed by Marc Chandler on March 17, 2010 Rating: 5
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