Politicalfuror has once again engulfed a Greek bailout.
Wikileaks'publication of an alleged conversation between three senior IMF figures —including the director of its European Department, Poul Thomsen — has provoked astern exchange of views between Greek Prime Minister Alexis Tsipras and IMFhead Christine Lagarde.
Thealleged conversation on March 19 indicated the IMF's considerable frustrationwith both Greece and its European creditors. Thomsen apparently said the IMFmight threaten German Chancellor Angela Merkel with an exit from the bailoutprogram — which would be distasteful to the Berlin Bundestag — unless there wassome debt reduction. He apparently also feared that the"discussion of the measures and the discussion of the debt [could] go onforever," highlighting the need for "an event" to galvanize debtdiscussions.
Tsiprastook this to mean a credit event, and in response to the leak he sent a letterto Lagarde on April 2 — published by TheHuffington Post the same day — in which he questioned the IMF's reliabilityand accused it of "using a credit event as a means to pressurize Greeceand the other member states."
Lagarderesponded with an open letter on April 3, in which she insisted that the IMF"conducts its negotiations in good faith, not by way of threats, and we donot communicate through leaks." She added that her staff was returning toGreece but "we are still a good distance away from having a coherentprogram."
"Thetalk here in Athens is that the leak came from the government,"Konstantinos Manolopoulos, head of research at the Investment Bank of Greece,said in an interview. "The Tsipras administration is using it to exertpressure on the IMF, possibly on the Germans and Europeans overall, to speed upthe process or relax a bit the criteria and the austerity measures." Hesuggested that the leak might enable Tsipras to blame "the bad guys at theIMF" in the Athens parliament.
Greekbank shares reacted badly to the spat, but Manolopoulos blamed this on thegeneral volatility in Greek bank stocks due to some foreign ownership andobserved that the shares had rallied recently. Neither he norChristoph Weil, senior economist at Commerzbank, were surprised by theinformation apparently revealed by the leak.
"TheIMF has always said that [reform] was not a question of technical feasibilitybut of political will," Weil said. Yet he did not think thatGermany would bow to the IMF's demands for a debt haircut. "The IMF wantsfar more than the European creditors, particularly Germany, are willing toconcede," Weil said.
Thetranscript of the leaked conversation also confirmed the views stated byThomsen in a Feb. 11 blog, where he wrote: "No amount of pension reformswill make Greece's debt sustainable without debt relief, and no amount of debtrelief will make Greece's pension system sustainable without pension reforms."
Inhis post, Thomsen pointed out that Greece broadly paid the same standard europensions as Germany, a country that is twice as rich as Greece and where peopleretire much later. Weil observed that Tsipras had only managed toapply cuts to new but not to existing pensions because of his wafer-thinparliamentary majority. "The pension reform has to go throughparliament, which is impossible at the moment," he said.
Yet,in the leaked conversation, Thomsen apparently described the current reforms as"Mickey Mouse stuff.” However, he indicated his willingness to contemplatea pension reform that might produce a primary surplus of 2.5% GDP rather thanwhat he had earlier described as the "ambitious medium-term target"of 3.5%. Yet this, he said in his blog post, would require debt forgiveness onthe part of the Europeans and their acceptance of a less "draconian fiscaladjustment in an already severely depressed economy."
Weildid not think that the IMF could participate financially from here on."They [the IMF] have faced very strong criticism internally fromdeveloping nations that they have given Greece such massive sums and with someconsiderable risk," he said. "It is not clear that they will geteverything back."
Manolopoulosagreed, saying the IMF's contribution of €10 billion to €15 billion to thethird Greek rescue package of around €85 billion would have to be found by theEuropean creditors, although there was also some money remaining after therecapitalization of the Greek banks.
Weildid not foresee a credit event this year but thought that the Europeancreditors would nevertheless find a way to extend the bailout. Still, heexpected Greece's struggles to continue for some time.
TheIMF, by contrast, is looking for a clearer and faster resolution.