02 October 2012

Reuters: Uneasy role for IMF in eurozone crisis

The eurozone debt crisis is pushing the International Monetary Fund into new, and at times uncomfortable, territory. The global lender is preparing to monitor some of Europe's largest economies possibly without its biggest weapon - money.

The IMF lacks the financial heft to come to the aid of economies the size of Spain or Italy on its own, even though its monitoring and enforcement role would be in demand. European Central Bank chief Mario Draghi has said IMF help will be sought both to design conditions and monitor programmes for eurozone nations that want the ECB to step in to buy their bonds to lower their borrowing costs.

Spanish Prime Minister Mariano Rajoy said he has no objection to IMF monitoring, but also insisted he did not want it making fresh demands for a further tightening of Spain's budget. Spain is widely expected to be the test case for the ECB's new eurozone rescue plan, and some investors think Italy could follow.

IMF independent oversight offers Europe the credibility it needs to reassure investors that the region is taking the necessary steps to tackle its crisis and that the region is moving in the right direction. But IMF involvement is politically toxic in Europe. It has escaped no one's notice that the three governments that had to go cap in hand to the IMF - Greece, Portugal and Ireland - were soon turned out of office by their voters.

Until now, the IMF has operated alongside the European Union and ECB as part of a "troika" of emergency lenders to Greece, Ireland and Portugal. Together, the troika has demanded fiscal and structural changes in exchange for rescue funding, and it has jointly overseen implementation of these bailout programmes. The IMF's role in this next phase of the eurozone crisis is less clear and a subject of some internal concern. European countries are some of the IMF's biggest and most influential member countries and speaking truth to power may be challenging.

IMF Managing Director Christine Lagarde, a former French finance minister, said last week the IMF had to remain an independent broker. "We are not the yes-man of the euro partners, nor are we the yes-man of the European Central Bank and we do our job as we should do our job", she said. "We should do our job as rigorously and vigorously as we have."

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© Reuters