IMF now seems to be playing ‘good cop’ to Europe’s ‘bad cop’

Olivier Blanchard’s blog seen as attempt to unite creditors and their errant borrower

Days after it brought the febrile Greek situation to a head by walking out the talks, the International Monetary Fund now seems to be playing “good cop” to Europe’s “bad cop”.

A Sunday night blog by chief IMF economist Olivier Blanchard is widely seen as an attempt to bring the creditors and their errant borrower together.

For the Europeans, the message was that they should prepared to delay more Greek debt repayments, accept only limited reforms and cut the interest applied to debt-relief loans. At the same time, Greek premier Alexis Tsipras was told to offer further pension reforms and accept that some VAT exemptions would have to be be dropped.

“On the one hand, the Greek government has to offer truly credible measures to reach the lower target budget surplus and it has to show its commitment to the more limited set of reforms,” wrote Blanchard.

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“On the other hand, the European creditors would have to agree to significant additional financing and to debt relief sufficient to maintain debt sustainability.”

It is as well to point here that the IMF is a major Greek creditor in its own right. This is crucial.

Having allowed Greece to tap a special reserve for its last repayment, the IMF then provided temporary leeway by saying it would accept repayment of a further €1.6 billion a few days late.

But that’s as far as IMF reliefs go. There’s no suggestion at all of a haircut on Greece’s IMF liabilities, no suggestion either of a rock-bottom interest rate on the loans.

The crowd in Washington might like to play the cuddly uncle from time to time. But it’s a bit of an act: the “good cop” here always commands a “bad cop” price.