It looked pretty much like Greece had a deal with its European partners and the International Monetary Fund, but that’s now been thrown into doubt with a massive decision from the IMF board.
The Financial Times’ Peter Spiegel got his hands on documents from the institution showing that they won’t sign off on the deal since there’s no explicit agreement to deal with Greece’s debt.
Here’s the most important part from the FT:
According to a four-page “strictly confidential” summary of Wednesday’s board meeting obtained by the Financial Times, IMF negotiators will “participate in policy discussions” to ensure the eurozone’s new bailout “is consistent with what the Fund has in mind.”
But they “cannot reach staff level agreement at this stage.” The Fund will only decide whether to participate during a “stage two” after Greece has “agreed on a comprehensive set of reforms” and, crucially, after eurozone bailout lenders have “agreed on debt relief.”
An IMF official subsequently confirmed to Reuters that, “The IMF can only support a program that is comprehensive,” meaning the IMF can’t give Greece more money until it know it will be able to pay it back.
The involvement of the IMF in the deal is crucial for some European countries, especially Germany.
Germany’s finance minister, Wolfgang Schaeuble, actually proposed a temporary Grexit (Greek exit) from the eurozone earlier in July, indicating just how little Europe’s largest economy wants to be involved in another financial-aid package.
It’s not the money that’s the issue for other European countries — as a country of 11 million people, Greece’s bailout won’t break the bank. The involvement of the international creditor is more to do with keeping the veneer of respectability about the programme, so that it keeps strict conditions and doesn’t veer into a giveaway from Europe’s richer countries.
It’s something of an irony that the IMF seems to have decided that it can’t be involved for the opposite reason, effectively saying that there’s not enough relief on debt coming from the European side to make the country’s finances sustainable, even if it did bring in the sort of extremely optimistic structural reforms that it’s signing up to.
An update from the IMF early in July already boosted Greece’s debt from “highly vulnerable” to unsustainable.