Last week Greece received a four-month extension of its $277 billion bailout program. The parliaments of Finland, Estonia and, most importantly, Germany, as well as Greece’s other EU partners, approved the bailout program that was agreed to Feb. 20, provided that Greece submit a list of planned reforms. Greece submitted six pages of reforms last Monday, but not all of Greece’s creditors think they are sufficient.
Christine Lagarde, managing director of the International Monetary Fund (IMF), wrote a letter to Dutch Finance Minster Jeroen Dijsselbloem, who is also president of the Eurogroup of eurozone finance ministers, expressing her concern that Greece’s proposed reforms were not specific enough, nor did they contain sufficient assurances on their design and implementation. The letter is the most recent, and public, indication of the IMF’s hesitancy toward Greece and its bailout program.
Brazil, in particular, has been outspoken in its objections to the IMF’s involvement in the Greek bailout. As a representative of 10 other developing countries on the IMF board of directors, Brazil “thinks Greece got a special deal and was allowed to borrow an extraordinary amount of money without respecting legal obligations,” says Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics. That highlights a fundamental difference between the IMF and the European Central Bank (ECB) and the Eurogroup: The IMF can only disperse funds if legal requirements are fulfilled.
While the IMF has been the most openly skeptical of the extension, the ECB, Greece’s biggest creditor, has also expressed concerns over Greece’s commitment to reform. The European Commission, the third member of the so-called troika of international creditors, is more favorable to Greece, but its influence on the bailout negotiations is minimal given that it has no money at stake, underscoring divisions within the troika. “The reason many countries, particularly Germany, keep the IMF involved is because they don’t trust the commission,” says Kirkegaard. These countries see the commission as being too soft on Greece and also lacking the track record of the IMF, which “has a long history of experience with structural reforms,” Kirkegaard adds.
That clearly sets the IMF apart within the troika. The IMF’s role in the Greek bailout, Kirkegaard explains, “is to oversee, verify and check reform progress on the ground in Greece.” Having the IMF’s experience in this area is particularly reassuring for Germany and other northern European creditor countries that want to know that their contributions to Greece are not being squandered. But that is not to suggest the IMF acts as political cover for northern Europe. “This is simply how the IMF does business, and they are good at it,” says Kirkegaard.
Since the deal that Greece and the troika reached last week is more of a stop-gap measure and doesn’t cover Greece’s financing needs, all sides will have to meet again soon to prevent Greece from running out of money well before June, and possibly in a matter of weeks. Greece’s radical left government, led by the Syriza party, will once again have to persuade the IMF and the eurozone to give them more money—no easy task. As Kirkegaard puts it, “There is a deal, but it is more a temporary cease-fire. The war will go on raging very soon.”
The fate of the Greek bailout, and with it the future of Greece and its economy, remains up in the air. Greece needs a more comprehensive deal to save it from complete economic collapse. Though whatever the final deal is, “it will look more like what the eurozone wants,” according to Kirkegaard. Syriza came to power at the end of January on a staunchly anti-austerity platform and vowed not to negotiate with the troika. Already in their first month in office, Prime Minister Alexis Tsipras and other Greek leaders have had to walk back several of these campaign promises.
However, Greece has won some minor victories in the negotiations. Greece is now able to propose changes to the bailout plan and not simply accept what the troika dictates. At least rhetorically, “Tsipras can claim he ended the troika,” adds Kirkegaard, as the Eurogroup communiqué on the bailout program makes no mention of the troika, but instead speaks of “partners.” Though it is only a shift in language, Tsipras can still present it as a concession won from Greece’s creditors.
Some are also painting the revised fiscal goals and the allowed lower primary budgetary surplus—that is, the budgetary balance before servicing debt—as a Greek win. But as Kirkegaard notes, “The fiscal targets reached last year became meaningless after the economic and political uncertainty because of the snap election. The troika responded to this uncertainty and lowered the targets.”
Syriza is also unlikely to win any concessions on broader structural reforms. The Greek government has already changed its language on how it will phase in a new minimum wage and shifted its policy on rehiring public sector workers.
While the debate over austerity rages on, the debt talks so far have signaled that the IMF’s hard line on reform and monitoring will likely push Athens’ radical left government to the center in order to reach a comprehensive deal. Syriza may have no other choice. “It is like Greece is currently falling from the 50th to the 40th floor,” Kirkegaard says. “It will hurt. But if they don’t reach a deal, they could fall all the way to the ground, which will hurt more.”