True, against all odds and historical logic, Europe seems poised to maintain the leadership of the IMF. Remarkably, in their resignation to the apparently inevitable choice for the top position, emerging-market leaders do not seem to realize that they should still challenge the United States’ prerogative of appointing the Fund’s extremely powerful number-two official. The IMF has already been extraordinarily generous to the PIGs. Once the new bailout-friendly team is ensconced, we can only expect more generosity, regardless of whether these countries adhere to their programs.
Unfortunately, an ultra-soft IMF is the last thing Europe needs right now. With its constitutional crisis, we have reached exactly the moment when the IMF needs to help the eurozone make the tough decisions that it cannot make on its own. The Fund needs to create programs for Portugal, Ireland, and Greece that restore competitiveness and trim debt, and that offer them realistic hope of a return to economic growth. The IMF needs to prevent Europeans from allowing their constitutional paralysis to turn the eurozone’s debt snowball into a global avalanche.
Absent the IMF, the one institution that might be able to take action is the fiercely independent European Central Bank. But if the ECB takes over entirely the role of “lender of last resort,” it will ultimately become insolvent itself. This is no way to secure the future of the single currency.
Friday, June 3, 2011
Rogoff on the Eurozone
I cited Olivier Blanchard, current chief economist of the IMF, in the previous post. In this one I turn to Ken Rogoff, a former occupant of the same post, for a comment on the control of the IMF: