As The Eurozone Teeters, The IMF Does Something Weird

By Don Quijones: As Europe teeters on a precipice of its own making, some people are beginning to wonder whether the IMF might have somehow discovered it has a conscience. Strange as it may sound, rumors of the IMF’s do-gooding began spreading on Friday after the Fund published a damning report on the sustainability of Greece’s finances and the Troika’s woeful mismanagement of the country’s debt crisis. Granted, the report was deeply critical of Syriza’s negotiation strategies and governance of Greece. But the report’s real victims were the IMF’s two Troika partners, the European Central Bank (ECB) and the European Commission, both of whom had fought to prevent its publication.
The latest developments confirm what I argued four months ago in “Is the IMF About to Make Greece an Offer It Can’t Refuse?”: namely that the IMF could well prove to be an unlikely, albeit temporary, ally for Syriza. Now, by publishing its Debt Sustainability Analysis at the best/worst possible time, the Fund has massively improved Syriza’s chances of achieving a no-vote on Sunday.
Here’s more from The Guardian:

With days to go before Sunday’s knife-edge referendum that the country’s creditors have cast as a vote on whether it wants to keep the euro, the IMF revealed a deep split with Europe as it warned that Greece’s debts were “unsustainable”.

Fund officials said they would not be prepared to put a proposal for a third Greek bailout to the Washington-based organization’s board unless it included both a commitment to economic reform and debt relief (DQ: exactly what Varoufakis and Syriza have been demanding for the last five months).

According to the IMF, Greece should have a 20-year grace period before making any debt repayments and final payments should not take place until 2055. It would need €10bn to get through the next few months and a further €50bn after that.

This €50-billion figure is the exact same ball-park figure that the IMF’s Brazilian economist mentioned months ago during an interview with private Greek television broadcaster Alfa TV. Indeed, according to Reuters, the publication of the draft analysis on Thursday laid bare a dispute between Brussels and the IMF that had been simmering behind closed doors for months.
All of which strongly suggests that the IMF’s latest move is not just another variation on the tiresome good-cop, bad-cop, bad-cop routine it has honed to perfection with its Troika partners, but rather what seems like a genuine split down the middle between the two European institutions (the European Commission and the ECB) and the Washington-based IMF.
As Reuters reports:

European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said.

There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

Mysterious Motivations
The $300-billion question is why? Why did the IMF decide to extend Syriza, a radical leftist government, a helping hand in its hour of need? Has the IMF suddenly found a conscience? Has it lost interest in destroying national economies for the benefit of the world’s largest banks and richest investors, and instead decided to dedicate itself to defending the rights and interests of the little man?
Or perhaps Washington wants to heap even further pressure on the struggling European economy and its ill-fated currency. But it makes little sense – unless, of course, it could somehow help the banks. According to Goldman Sachs, cranking up the tensions in Greece would have one obvious benefit for the banking sector: it would justify increasing the ammunition for an even bigger QE bazooka, with which Draghi could flood Europe’s foundling banks with delicious free money. It’s a simple idea: kill a country, save a bank.
Now that is much more the type of mission that the IMF of yore would lead. And there are already signs that the ECB is cranking up the ammunition.
Yet I’m still not convinced, I think there’s more. I believe the IMF’s motivations go much deeper than that, way deeper – to the very heart of Europe’s institutional structures. Lest we forget, the EU is an incomplete project. Unless it is completed, it will collapse. However, for the monster to be made whole, complete monetary and fiscal union will be needed – and the sooner, the better.
But for that to happen, the eurozone’s richest countries (Germany, Holland, Finland, etc) must accept the basic notion that part of their wealth will need to be redistributed to poorer countries, as happens in almost all advanced economies. However, that idea is not very popular right now, as shown by the rise of anti-bailout parties. Meanwhile, Merkel’s government continues to resist calls for deeper economic integration, as Der Spiegel notes in an unusually scathing critique of Merkel’s leadership in Europe:

Merkel wants a Europe of nation-states and not a deeply integrated Europe. She was concerned about Juncker running as the lead conservative candidate in 2014 European elections, worried – correctly – that it could result in a reduction of power for European heads of state and government. Furthermore, she doesn’t trust the European Parliament because majorities aren’t as dependable as they are in the Bundestag back home in Berlin.

And perhaps that’s why the IMF is what appears to be doing what might appear to be an enormous favor for Syriza in Sunday’s referendum. By stoking fears of chaos, it helps to force the hand of Europe’s richer economies. If, thanks in part to the IMF’s intervention, Greece votes NO in Sunday’s referendum and economic uncertainty and panic spread to other periphery nations, it won’t be long before even the most stridently anti-bailout government is begging for a negotiated solution.
And when (or perhaps better, if) the calm settles, the governments of Spain, Italy and Portugal will be lining up around the block for much of the same. And provided it doesn’t bankrupt the eurozone, they’ll probably get it. And that, dear reader, is how the basic concept of the euro zone’s transfer union will be born.
The fact that another bailout of Greek debt (including a $60-60bn haircut) will allow the ECB and IMF to return most of the malinvested funds their risk-averse friends from Wall Street and the City of London ploughed into Greece would just be an added bonus, the little cherry on top. 

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