That doesn’t bode well for Greece, which appears to be hurtling toward another default.
- By David FrancisDavid Francis is a senior reporter for Foreign Policy, where he covers international finance. An award-winning journalist, David has reported from all over Europe, Nigeria, Kenya, Mexico, and Afghanistan on terrorism, national security, the geopolitics of energy, global economics, and the European financial crisis. His work has been published in outlets including the Christian Science Monitor, the Financial Times Deutschland, Slate, and SportsIllustrated.com.
U.S. President Donald Trump’s choice of two International Monetary Fund skeptics for top jobs at the Treasury Department could spell trouble for the European Union’s effort to keep Greece’s bailout on track.
Trump has chosen David Malpass as Treasury’s under secretary for international affairs and Adam Lerrick as the assistant secretary for international finance. Malpass, who served in a senior Treasury post under George W. Bush, and Lerrick, a former congressional economic adviser, have been openly skeptical, both in public comments and in their writings, of the role of international financial institutions.
Since the Greek debt crisis erupted in 2010, they have been vocal critics of the repeated rescues by the IMF and Europe, without them being tied to Athen’s follow through on the adoption of reforms to significantly slash spending. In 2015, Lerrick, who would report to Malpass if confirmed, has called for a parallel currency until Greece can get its fiscal house in order. The idea never got traction.
Now, Greece is barreling down the path to default again and many experts believe U.S. support would be helpful to break an impasse between Germany and the IMF over its bailout terms, just as it was in 2015. But from the looks of these Treasury appointments, it doesn’t seem likely the Trump administration will oblige. The Treasury Department did not respond for request for comment.
Without access to the latest tranche of bailout funds, Athens is on course to miss a July bond payment of $2.2 billion. Greece defaulted on its debt in 2015, and then its voters rejected a referendum on whether to accept austerity demanded by Europe. Months later, as financial pressure mounted across Greece, Greek Prime Minister Alexis Tsipras eventually agreed to spending cuts that were more harsh that what the EU had originally proposed.
Tsipras has yet to follow through on these promises. Now, Germany, the largest contributor to the $92 billion bailout, says it will not continue to fund the rescue if the IMF does not give money to it. The IMF argues Greece’s debt is unpayable, and wants Europe to forgive some of it. Berlin has refused, leaving both sides at an impasse. In February, European leaders were unable to come up with a plan to give Athens more cash. Without new funds, another summer default could be in the works, said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
In 2015, U.S. President Barack Obama and then-Treasury Secretary Jack Lew implored the IMF and the EU to work together to save Greece. Robert Kahn, a senior fellow at the Council on Foreign Relations and an expert on international financial institutions, said he does not expect the same spirit of cooperation from the Trump administration. “Look at the appointments at Treasury, and particularly on Greece, you can see a pretty firm line in terms of no IMF bailouts or lending programs,” Kahn said.
This anti-IMF sentiment extends beyond Trump’s appointees. In March, Rep. Bill Huizenga (R-Mich.) introduced legislation that calls for the United States to oppose the fund’s “cofinancing of a third Greek bailout.” So far, the bill hasn’t moved out of committee, but it does reflect a wider belief among some Republicans: the United States, the largest contributor to the IMF, should have a louder voice on the bank’s board.
“The extreme manifestation of Trumpism is diametrically opposed to the founding principles of the IMF,” James Boughton, the IMF’s official historian for two decades until 2012, told Bloomberg earlier this year. The Fund is “going to have to play a very delicate game.”
Trump’s appointments show that the new administration is unlikely to play the activist role its predecessor did when it comes to international sovereign debt crises, argued Desmond Lachman, a former chief emerging market economic strategist at Salomon Smith Barney who is now a scholar at the American Enterprise Institute. This extends not just to Greece, both other places like Ukraine, which is the recipient of an IMF bailout.
“This is an America-first kind of policy,” Lachman said. “Trump believes Greece is Europe’s problem, not America’s problem.”
Photo credit: MARTIN BERNETTI/Getty Images