April 19, 2018
Handelsblatt is currently on a roll in its coverage of Germany’s retreat from a eurozone reform agenda. Its latest scoop concerns an important policy shift of the grand coalition in favour of continued involvement of the IMF in any future eurozone rescue programmes. This policy shift essentially dashes any hopes of a significant change in size and mandate of the ESM. The paper reports that Olaf Scholz was particularly keen on reverting to a stronger role by the IMF. It said the IMF was also more open to the idea, and was even reconsidering its hardline position on Greek debt relief.
Stories such as these are based on one-sided briefings. The journalists did not seem to have talked to the IMF. But the story is interesting in the sense that it reflects expectations from inside the German finance ministry, which is clearly the source of this information. Those sources told Handelsblatt that the relationship with the IMF had much improved since last autumn, when they hit a low point as European finance ministers complained about the IMF’s unchanging position on Greece. It was the Europeans’ threat to construct an EMF which gave the IMF pause for thought, the paper writes.
The paper also quoted Peter Altmaier, when he was acting finance minister earlier this year, as surprising the eurogroup with the announcement that the ESM would always remain the junior partner to the IMF.
We think the story is probably exaggerated, but it is nevertheless a reflection of Germany’s second thoughts on the whole EMF business. It is unlikely that the EU will be able to find a good compromise on the many questions that arise as a result of an upgrade of the ESM: who will lead it; what will be the financial framework; will it be anchored in EU law; what rights would it have in monitoring the economic policies of programme countries; and whether or not there would semi-automatic debt restructuring. Even if there is a consensus to give the ESM a greater role in the supervision of programmes, the Germans still want the IMF as a partner.
The main reason why the IMF is softening its position, according to this article, is the combination of Donald Trump in the White House and ongoing alienation of Asian countries, who are also trying to obviate the need for IMF programmes. The IMF and the EU need each other at a time like this, the article says.
We also have stories on Greece expecting more tensions ahead of Turkey's snap elections; on the French senate and parliament rebuking Macron's draft constitutional reform; on the EU's infrastructure investment gap; on how Catalonia financed its referendum; on the likelihood of new elections in Czechia; on the Lord's defeat of the UK government on customs union; and on what Otmar Issing has to say about the close-to-but-below 2% inflation target today.