Friday, March 19, 2010

Europe Frays

Depressing news out of Berlin: the German government would apparently now prefer to let the IMF deal with Greece. The IMF has less money available for Greece and can impose tougher conditions, it seems, than the EU. And German voters are simply refusing solidarity with their Greek counterparts. Angela Merkel has even said that if Greece must abandon the euro, that is preferable to a bailout.

The ratification of the constitutional treaty--an achievement of which Sarkozy used to boast--is all but forgotten. In a crisis, it is now clear, European governments will go their own way, and there is not even a pretense of central leadership, unless you count Brussels' warning the other day to a number of countries, including France, that their deficits are way out of line. In short, Germany is proposing deflation and austerity for its neighbors in order to maintain social peace at home. Will social unrest now spread from Greece to the rest of the southern tier?

Meanwhile, Sarko is keeping his criticism of Merkel (relatively) muted. In private, however, he reportedly said of the Germans: "They haven't changed." In private--yet it's published in Le Monde, which is not likely to warm the heart of Europe, of which France and Germany are the systole and diastole.


Anonymous said...

Isn't the point about the IMF that it depends not so much on European preferences but on whether or not the US treasury is willing to bail out Greece (as the bulk of what the IMF can provide will come from Washington)? So a German preference for the IMF is one thing; the decision of the US is another. Is there any likelihood that an IMF bailout would not be forthcoming because of US opposition to stumping up the cash for it?

Unknown said...

As I understand it, the IMF already has funds on hand, but Greece's drawing rights on those funds are limited by a pre-determined quota. And the IMF has established rules for countries accepting its funds, so their would be no ad hoc trimming to accommodate the Greeks in particular. Thus recourse to the IMF would likely impose on Greece a stricter regime than recourse to a hypothetical EMF would. The US has no discretion in the matter.

Unknown said...

But see also: