The IMF Pays the Grecians [sic] a Housecall

♠ Posted by Emmanuel in , at 1/11/2010 06:40:00 PM
Much has already been said about how the Eurozone's financially incontinent PIGS--Portugal, Ireland, Greece, and Spain--are challenging European currency union. From running sizeable external deficits in the past to accommodate Europe's own version of housing bubbles, these countries are now becoming a drag on the Eurozone via their decrepit public finances after housing-related tomfoolery imploded. The years' long party in Greece is well and truly over.

A few days ago, Martin Wolf ran a typically informative feature on the Eurozone's prospects. What we have here today, though, is news that one of these chronic problem nations is calling in the IMF to investigate what ails it. Greece is set to be visited by IMF troubleshooters, and this can of course be played in many ways in the court of public opinion. There's the time-tested one of taking hard medicine via belt-tightening that can usually be blamed as IMF diktat. Interestingly, the IMF doesn't necessarily object to it being portrayed as a villain in most instances and is more interested in actual policy change than being made a rhetorical scapegoat. Another possibility, of course, is to make a grand show of inviting IMF officials then making a drama of not bowing to the influences of neoliberalism and "global capital" (the populist agenda).

Whatever happens will certainly be interesting to watch. From Bloomberg:
The IMF will send a team to Greece tomorrow after its government requested technical assistance in tackling the euro-area’s largest budget deficit. “On request of the Greek authorities, a staff team from the International Monetary Fund will visit Athens starting Jan. 12 for about a week to explore possibilities for technical assistance from the IMF in the coming months on pension reform, tax policy, tax administration and budget management,” a spokeswoman for the Washington-based lender said in an e-mailed statement today. The mission is “within the context of the regular [annual] surveillance that the IMF provides to its membership,” according to the statement.

Greece’s economic plans are under scrutiny as the country attempts to convince the European Union and investors that its plan to tame the EU’s largest deficit is credible. EU and European Central Bank officials were in Athens last week to vet the government’s three-year stability pact, an outline of how Prime Minister George Papandreou aims to reduce the shortfall from 12.7 percent of output in 2009 to less than 3 percent by the end of 2012...

Greece last week rejected speculation that it will need a bailout to tackle the deficit. The IMF, which has moved to shore up economies from Hungary to Pakistan over the past 18 months, is “taking a close look” at Greece’s policies “and forming an opinion about their likely impact,” John Lipsky, the IMF’s first deputy managing director, said last week. Greece is an IMF member in “good standing,” Lipsky said.

Finance Minister George Papaconstantinou will give details this month to the European Commission on how Greece will meet its deficit-cutting pledges as he seeks to avoid possible penalties under the EU’s excessive-deficit procedure.

Papaconstantinou has pledged to cut the deficit to 8.7 percent of gross domestic product this year and below the EU’s 3 percent limit by the end of 2012, a year earlier than the original plan. The widening deficit prompted Fitch Ratings, Standard & Poor’s and Moody’s Investors Service to lower Greece’s creditworthiness last month, fueling concern about a possible default.

The rating cuts and default concerns contributed to a slide in Greek bonds in December. The premium investors demanded to buy Greek 10-year government debt over comparable German bonds widened to 276 basis points [2.76%] on Dec. 21, the widest since March 17...Greece’s deficit has prompted speculation from some investors that the rest of the EU would save the country from default if such a move were necessary. The EU will support Greece’s efforts to tame the deficit, Spanish Prime Minister Jose Luis Rodriguez Zapatero, who holds the EU’s rotating presidency, said last week in Brussels.

How far support from the EU or ECB would go remains unclear. ECB Executive Board member Juergen Stark said in a Jan. 6 interview in Italian newspaper Il Sole-24 Ore that “markets are deluding themselves” if they are counting on a bailout. The Brussels-based commission will make a recommendation on the Greek deficit reduction plan to EU finance ministers, who will likely announce their final ruling at a meeting in Brussels on Feb. 15-16.
It's interesting how co-perpetual Stability and Growth Pact offender Spain is currently the rotating head of the EU. Will this mean Spain cajoling for more leniency for Greece insofar as it's in a similar position? What medicine Greece gets will inevitably set a precursor for the handling of Spain's economic woes. Again, it's another interesting point to watch.

Meanwhile, commentary on who would help bail out Greece if necessary is rather inconsistent. Der Spiegel says it's the EU's problem and that IMF financial help shouldn't be forthcoming for it may send the wrong political signals about the Eurozone. OTOH, Reuters quotes the IMF-Europe Director Marek Belka as saying the IMF will step in if asked by Greece or the EU. In any event, decision time for the EU on what to do with Greece is just a little over a month away.