TIME TO SEND THE IMF TO ATHENS / THE FINANCIAL TIMES EDITORIAL ( HIGHLY RECOMMENDED READING )

Time to send the IMF to Athens

Published: March 21 2010 17:48

Pride has made members of the eurozone reluctant to ask the International Monetary Fund to help its errant member, Greece. Pride is a poor foundation for policy. The Fund is the best body to help a country that has messed up its finances. IMF is even said to stand for “it’s mostly fiscal”.

We are not talking about a “bail-out”. Greece has committed itself to fiscal contraction. But the market lacks confidence in its determination to deliver. Such a lack of confidence increases the price of debt and, still worse, the difficulty of rolling it over. The purpose of liquidity assistance is to give the country the needed breathing space. That is exactly what well-designed support should achieve.

The eurozone is having huge difficulties in delivering such a package. This is partly because of fierce political resistance, notably in Germany, to anything smacking of a bail-out. It is also because no European institution has the expertise to develop and implement such a package. The eurogroup is not such an institution. It is a body of fractious finance ministers. How fractious has been all too evident.
For the IMF, in contrast, fiscal crises are daily fare. Indeed, it is already dealing with them in eastern Europe. It is able to approach the task as a technical, rather than a political, one. That is precisely what is needed, to lower the intra-eurozone temperature. At present, however, understandable resentment at Greek misbehaviour is making rational policymaking impossible inside the eurogroup.

The chief argument against the IMF’s intervention seems to be that an “outsider” should not be allowed to interfere inside the eurozone. But the eurozone is neither a federation nor a fiscal union. So why should IMF intervention be so dreadful? Moreover, since Europeans possess close to a third of the votes in the Fund, the idea that the latter would ignore the views of European countries is absurd. The danger is, rather, that it would show excessive deference.

Let the eurozone defuse the crisis by asking the IMF to lead in a rescue package for Greece. To the extent necessary, let its members provide additional liquidity support. Let the Greeks then show whether they can deliver. Later on, after this crisis is over, let the eurozone decide what additional mechanisms it needs, including its own European Monetary Fund.

The eurozone should take advantage of the fact that it is not a political union. Its pragmatic choice is to turn to the IMF. Fundamental reform can follow, once the lessons of this crisis are clear.

Copyright The Financial Times Limited 2010.