IMF aid for Greece crisis seen as a risky prospect

In the last two days, Greece’s finance minister has threatened to turn to International Monetary Fund for a bailout if Chancellor Angela Merkel of Germany and other European politicians resist pledging aid to help Greece cope with its newfound frugality. Asking the fund for help could create a new round of financial and political turmoil by sending the message that Europe cannot resolve its own problems, analysts said.

“It would be damaging for the euro zone going forward because it would sow seeds of doubt about whether this is really a currency union, or just a group of countries that share a currency,” said Simon Tilford, Chief Economist of Centre for European Reform in London.

Avoidable stigma
Policy makers and leaders of many countries that use the euro see Greece’s troubles as a problem within the family. They want a homegrown political solution to show that Europe can fix internal economic crises without outside help. Turning to IMF, which often helps struggling emerging-market nations, is seen as a stigma that is to be avoided, a concern underscored the European Central Bank President Jean-Claude Trichet, on Wednesday. “I do not trust that it would be appropriate to have the introduction of the IMF as a supplier of help,” he said.

No member of the euro zone has had to borrow from IMF since the official use of the common currency began in 1999, and no major industrialised country in Europe has done so since Britain in 1976. But from Greece’s perspective, IMF would force the government to swallow nearly the same bitter medicine that Germany, France and others have required — but at least Athens would receive guaranteed financial aid from the IMF in return.

In addition, it is not clear that Germany and other European governments seeking to contain the crisis have the resources or expertise to monitor Greece and other profligate euro members for the many years that it will take for the troubles to blow over. And if Greece has to refinance more and more of its debt in the coming months, the crisis could intensify. Greece’s game of brinkmanship may well bring IMF to its doorstep. For Greek leaders facing wide civil unrest, including the unions’ occupation of the country’s finance ministry on Thursday, the threat of turning to the IMF can serve useful ends.
But even setting aside the symbolic implications, some experts believe that an IMF bailout would deeply rattle the markets.

The biggest challenge is in Germany, which has historically tended to enforce fiscal and economic rectitude on its neighbours. Many German taxpayers are vehemently opposed to paying for the profligacy of their free-spending neighbours in Greece and other southern European countries.