The International Monetary Fund (IMF) has cast serious doubt over the future of Greece’s new €86 billion bailout package. The Fund claims that high debt levels and a poor record of carrying out reforms, disqualifies Greece from further assistance. As a result, the IMF could reject an extension of its loan, putting the entire ECB-EU bailout package in jeopardy.
Well, the IMF clearly didn’t get the memo to keep Greece in the Eurozone at whatever cost.
From my perspective, this has nothing to do with Greece. My theory on this, admittedly, may be wildly off the mark. But I feel there’s a behind-the-scenes game playing out here, and that it all revolves around free trade agreements. I’ll expand on that shortly. But first we need to look at how we got here.
IMF requirements put Greece offside
Greece currently has an existing loan program with the IMF, which runs through to March 2016. As part of this deal, the IMF could, theoretically, give Greece another €17 billion by early next year. But the IMF is now indicating it might reject any attempts to extend the deal past this point.
On July 23, the Greek finance minister sent a letter to the IMF requesting a new loan post-March 2016. Greece more or less had to this. By accepting the EU-ECB €86 package earlier this month, they also agreed to seek new financing from the IMF.
But the IMF has other ideas in mind.
From their perspective, Greece has to prove that its public debt is sustainable in the medium term. Presumably that’d be enough to convince the IMF to issue a new loan.
Greece can’t do this, because their debts simply aren’t sustainable. The bailout agreements weren’t designed so Greece could pay back its creditors. They’re designed to keep Greece on a leash; as slaves to the European headmasters in Brussels and Berlin.
Yet the IMF isn’t pressuring Greece as much as it’s European counterparts.
Their position on this is quite clear. They require an ‘explicit, concrete commitment of debt relief from euro-member countries before moving forward with a new loan’ (Australian Financial Review). As it happens, euro-members haven’t had any discussions with the IMF over a debt restructuring.
This means that, as it stands, we’re heading towards an impasse. Unless the creditors come to an agreement over how to move forward in unison, Greece will fail to win a third bailout from the IMF. And that puts the Troika at odds with each other.
If you’re wondering why the ECB and EU don’t just forge ahead with the package without the IMF, there’s a snag with that too.
Without IMF support, the €86 billion bailout agreement will have a hard time passing through Germany’s parliament. Not only would Greece have no new IMF funds, but the recent bailout agreement would be dead in the water.
With that, we’d be back to square one, raising the prospects for a Grexit.
What a potential IMF rejection tells us about the Troika
There’s clearly a disconnect between European (EU, ECB) and American (IMF) creditors. The IMF is an American institution in all but name. And that gives us a clue in to the power politics playing out in the background.
If the IMF was acting in concert, they wouldn’t be asking the Eurozone to help write down portions of Greece’s debts. They’d have no issue forging ahead with a Greece that can’t ever hope to repay its debts.
After all, the IMF are no strangers to handing out punishing loans to debt-laden nations. They have a history of doing exactly, not least in Greece itself.
Saddling countries with debt, the IMF sets terms that are impossible to repay. But countries like Greece take the bait because they have no other choice. This helps institutions, like the IMF, push through political reforms, opening up states to global conglomerates to feast on. This can leave economies worse off than they had been prior to taking on the loans.
Due to their history, the current discord with European creditors suggests that something else is going on.
As far as I see it, the IMF’s hesitancy in granting Greece an extension has nothing to do with Greece. But I think there are far greater concerns at stake as far as the IMF is concerned.
Is the IMF playing hardball with the European Union?
If keeping Greece in the Eurozone was in the IMF’s best interests, they’d have no problem bending their own rules. But the IMF isn’t an economic institution first. It’s a political instrument, with economics a secondary concern. It uses its position as a lender to leverage its own position against borrowers. That means that it can afford to take a hit on Greece if push comes to shove.
Now, we know that the IMF wants the European creditors to write down some of Greece’s debt.
Why? What’s in it for them? Do they really care about Greece’s ability to pay its debts? Maybe they do. Or maybe they have an agenda.
I mentioned already that the IMF is primarily a US-influenced institution. While the US only retains 16% voting rights, it’s power sways the vast majority of other members.
The IMF and the Transatlantic Trade and Investment Partnership
I believe the IMF is applying pressure on the European Union. And I think they’re doing this because of the Transatlantic Trade and Investment Partnership (TTIP).
The TTIP is one of the most comprehensive, bi-continental free trade agreements in history. It would essentially force through an economic merger of the United States and the EU.
Critics argue that the TTIP would only serve to increase corporate power, making it difficult for individual states to regulate markets for the greater good of their people. Proponents say that it’d promote economic growth, an issue both sides of the Atlantic are grappling with.
Whatever one thinks of the TTIP, it requires a lot of political will to realise it.
At present, there are opponents of the TTIP on both sides, especially on the European front. That’s because the EU isn’t a federalised union. It still has to take into account the voices of each of its 28 member states. That means that the TTIP is in limbo at the moment.
That brings us to Greece.
We know that ECB and EU want Greece to remain in the Eurozone. I think the IMF is telling the EU to get its house in order and start making real progress on the TTIP. And it’s using Greece’s bailout package to blackmail the EU into doing just that.
If that sounds too conspiratorial, it’s because it very well might be. But we always have to consider the political angle whenever Greece’s creditors are scheming. Since they’re not on the same page right now, we have to ask why? There’s clearly a divide. The debts didn’t use to be a problem for the Troika of creditors. Now, for some reason, the IMF is getting cold feet.
Contrary to what some will have you believe, this has never been about debts. It’s about control.
Keeping Greece in the Eurozone is the EU’s way of retaining control over Greece. Meanwhile, the IMF’s handling of Greece is a way of gaining leverage over the EU in the TTIP negotiations.
Where does this leave us then?
Well, an agreement over a new bailout may not come until next year. If the IMF holds out, the bailout will struggle to gain approval in Germany’s parliament.
That means the saga could drag on until the first quarter of next year. I expect the IMF will eventually make a compromise, but not before we see a major shift in favour of the TTIP.
Contributor, The Daily Reckoning
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