Tuesday

7th Feb 2023

Juncker concedes IMF role possible in Greek bail-out

The possibility of a twin-track approach involving aid to Greece from both euro area governments and the International Monetary Fund appears to be gaining traction in Europe, with a key supporter of a eurozone-only solution conceding the international funding organisation may have a role to play.

Speaking in front of the the European Parliament's economy committee on Monday (22 March), euro area chief Jean-Claude Juncker said a number of member states increasingly favoured the idea.

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  • Mr Juncker is a strong supporter of a eurozone-only solution (Photo: Council of the European Union)

"My personal view is that it's better to have a solution that does not have an IMF component because the euro area needs to be able to solve its own problems. But I think mixing the two instruments would not be a major scandal," said Mr Juncker, provided euro area governments provided "the lion's share" of any financial aid.

Any twin-track approach "must respect eurozone rules", he added.

Initially opposed to any IMF financing for debt-ridden Greece should it struggle to meet refinancing demands in the coming weeks, a number of key national capitals have recently warmed to the idea.

"In the case of such an emergency arising ... the financial assistance of the IMF is, for the chancellor and the government, definitely a point for discussion," German government spokesman Ulrich Wilhelm told a government news conference in Berlin on Monday.

Comments from Finland's finance minister and domestic constraints in the Netherlands suggest Helsinki and the Hague would also support an IMF financing role.

Mr Juncker indicated any euro area aid would probably take the form of a "bilateral system of co-ordinated aid", but that not all countries would contribute "because one or two members have precluded a eurozone approach", something he is "not very happy about".

Greek Prime Minister George Papandreou indicated last week he expected EU leaders to give a clear signal when they meet in Brussels on 25-26 March, but Mr Juncker said a decision this week was not "absolutely necessary".

Spain and others

As economists and politicians increasingly seek to explain the underlying causes of Greece's current difficulties, eurozone imbalances are coming in for increased scrutiny.

French finance minister Christine Lagarde recently said Germany's export-driven economic model, built on holding down labour costs, was "unsustainable". She suggested the government of Europe's largest economy should raise long-stagnant domestic consumption, helping weaker eurozone nations to boost exports and shore up their finances.

Mr Juncker told MEPs the issue of such disparities within the eurozone was not the main issue at the moment, but would have to be tackled at some point.

A paper published by Brussels-based think tank Bruegel on Monday draws attention to the subject however, pointing out that even countries that were "fiscally virtuous" before the financial crisis, such as Spain, are still suffering from market doubts and higher borrowing costs.

The paper's authors highlight Spain's problems as originating in a domestic credit boom, which caused wages to rise and and the country's competitiveness to subsequently fall.

"The EU has instruments to help address such problems and correct internal imbalances, but in the first decade of the euro it was too often assumed that threats to stability could come from budgetary indiscipline only," says the document.

Rather than striving for balanced eurozone current accounts, an idea that the report's authors describe as "absurd", a system of greater systematic monitoring of "wage and price developments" should be implemented in eurozone states, allowing for a greater monitoring role and "a tentative alert procedure" for the European Commission.

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