IMF urges tougher EU response to debt crisis

 

THE IMF is urging EU leaders to toughen their response to the debt debacle, pushing them to proceed quickly with the reforms to its bailout regime proposed on Monday night, which will potentially ease the burden on Ireland and other countries in receipt of support.

The pressure on Europe from the IMF follows the recent appointment of former French finance minister Christine Lagarde as managing director of the Washington-based organisation.

But German chancellor Angela Merkel appeared to be hanging tough yesterday in the face of the IMF pressure. She blocked plans for an emergency euro zone summit today, arguing that leaders could meet only if a deal was done on a second Greek bailout.

“The condition is that we are able to decide on a completed new programme for Greece,” she said. The new programme is expected to reflect the decision taken in principle on Monday to look at methods of reducing Greece’s debt burden.

Germany appears to have taken heart from the Italian parliament’s vote in favour of a €40 billion austerity package. The view in Berlin is that the current spike in Italian borrowing costs will abate if its prime minister Silvio Berlusconi presents a unified front with his finance minister Giulio Tremonti. The two men were in open conflict last week over new budget cuts.

Talks in Rome yesterday between euro zone finance ministry officials yielded no breakthrough on private creditor participation in the second Greek bailout.

Any emergency summit is likely to be preceded by a meeting of euro zone finance ministers, who agreed in principle last Monday to expand the remit of their bailout fund.

European diplomats said Ms Lagarde’s deputy, John Lipsky, made crucial interventions at that meeting.

European diplomats said Mr Lipsky arrived at the euro group meeting with a “shopping list” of bailout fund reforms, many of them mirroring proposals advanced by EU economics commissioner Olli Rehn.

With no sign of any easing in the turmoil, the IMF’s assertiveness is perceived to reflect frustration with Europe’s hesitant response to the crisis.

The fund’s mission chief to Ireland Ajai Chopra was unsparing yesterday as he called for a comprehensive solution to the debt debacle.“The problems that Ireland faces are not just an Irish problem. They’re a shared European problem,” he told reporters in Dublin at the end of an EU-IMF “troika” mission to Ireland.

“What we need and what’s lacking so far is a European solution to a European problem. What’s critical now is for Europe to dispel the uncertainty that’s being created by the lack of what’s perceived by markets as an insufficient response.”

The force and precision of Mr Chopra’s remarks were noted in Brussels, where diplomats said they were in keeping with the fund’s forthright approach since Ms Lagarde took charge 10 days ago.

Her predecessor Dominique Strauss-Kahn, who faces sex assault charges in New York, was regarded as one of the leading intellectual lights of the long campaign to settle the crisis.

Anxiety about Greece put Ireland under fresh pressure for weeks but European leaders were forced into action when contagion spread to Spain and Italy.

A pivotal figure in the group of euro zone finance ministers for four years, Ms Lagarde is deeply familiar with the divisions which have hampered Europe’s halting response to the crisis.

Mr Chopra’s remarks echo concerns that the fund has expressed elsewhere.

In a policy note for G-20 officials released yesterday, the IMF warned that the risks of not resolving the Greek crisis are severe.

“A greater sense of urgency is needed to address the crisis and reduce the risks of contagion,” it said.