July 31, 2015
We noted before that the real conflict in the Greek debt crisis will shift from Greece to its creditors. That is now happening. The FT has obtained a leaked memo from the IMF's staff to the board of directors, which essentially says that the IMF cannot take part in the third programme. The FT writes that the paper was presented at a two-hour board meeting on Wednesday. The staff said that the IMF cannot participate until stage two of the programme - once Greece has implemented reforms and the EZ creditors have agreed to debt relief. Specifically, the staff said the requirements for the IMF's special access criteria, which allow the IMF to make larger than usual loans, are no longer fulfilled. Under the criteria, Greece would have needed to demonstrate “institutional and political capacity” to implement reforms, and a high probability that debt becomes sustainable. The staff noted that these criteria had not been met up to now, and it would not be clear until the autumn whether they will be.
We do not think that such a decision will scupper the deal. But it means that the only way for Germany to secure IMF involvement in the programme is to agree to debt relief on the IMF's terms. That implies that the Bundestag and the other parliaments that have to ratify would have to publicly acknowledge either that their contribution to the programme will have to be bigger than they admitted because the IMF will not participate, or that there will be a debt restructuring which is a sine-qua-non condition of future IMF participation. What this means is that Greece will now have to implement the bulk of the agreed reforms by the autumn (way beyond the prior actions, which have been the focus until now) and that, once this happens, the eurozone will need to agree to a schedule of talks on debt relief.
The FT story quotes the German representative at the IMF saying that Berlin would have preferred the IMF to join during stage one. There was no official comment from Germany yesterday. It certainly adds another layer of complexity to the agreement that has to be finalised by August 20. The article also mentioned that non-eurozone members of the IMF, including from Asia, Brazil and Canada, had warned that the fund needs to protect its reputation.
Our other stories today look at what Tsipras achieved in the address to his own Syriza party; why the SPD has abolished itself; the national interest at the heart of the eurozone; how to avoid a bail-in; and on Catalan independence.