My Big Fat Greek Bailout
Team Trump to IMF: Stand Your Ground on Greece

Europeans hoping that the U.S. might lean on the IMF for friendlier Greek bailout terms may be out of luck. As the Wall Street Journal reports, early word from the Trump administration suggests that Washington is telling the IMF to stand its ground, even if that means withholding financing for a third bailout:

Greece’s economic crisis is principally Europe’s problem, U.S. Treasury Secretary Steven Mnuchin said in an interview, offering the first hints on how the Trump administration will treat one of the eurozone’s most critical issues.

His comments, along with his conversation with International Monetary Fund Managing Director Christine Lagarde on Tuesday, suggest the new administration will encourage the fund to hold to its hard line on Greece, keeping it out of a third bailout for the foreseeable future. […]

The Trump team could offer the IMF cover as it faces escalating pressure from Germany to give Europe’s Greek bailout credibility with fresh financing. If Washington signals it won’t allow the IMF to tweak its numbers on Greece to make Europe’s bailout work—like it did in the first two programs—the fund will have backing from its most powerful shareholder to stand firm. […]

Gerry Rice, the IMF’s top spokesman, made clear Thursday the fund won’t offer Greece any new cash until Athens delivers on pension and tax overhauls and Europe gives the IMF a “credible” and “specific” commitment to Greek debt relief.

As we have noted before, the IMF has lately become the scapegoat for EU leaders frustrated with their own colossal failures in resolving the Greek debt crisis. The fund’s gloomy forecast on Greece’s unsustainable path and its insistence on debt relief has irked Eurozone leaders, raising the possibility that the IMF would pull out of a new bailout and leave the Europeans to figure it out for themselves. Judging by Mnuchin’s comments, such an outcome would be perfectly acceptable to the new White House.

There is still a chance the IMF could cave on its demands for debt forgiveness, despite Washington’s signals to hold firm. IMF Head Christine Lagarde recently met with Angela Merkel and emerged talking about Greek debt restructuring rather than outright debt forgiveness. That shift seems to be a tacit concession to political realities in Germany, where the prospect of debt relief remains politically toxic, no matter how necessary it is from a fiscal perspective. As a new poll shows, over 46% of Germans oppose Greek debt relief, while 3 in 10 want Greece to leave the Eurozone outright. These are hardly the kind of numbers that give Merkel an incentive to write off Greek debt, especially as she prepares for election season.

If Germany won’t budge, then, the key question is whether the IMF will—and the signals coming from the White House could give the fund new reason to hold its ground.

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