Greek Prime Minister Alexis Tsipras has been scrambling to quell a revolt from his own far-left Syriza party to save the 86 billion euro, or $94 billion, bailout package Greece needs to stay solvent. It may not matter: The International Monetary Fund has just made an unexpected decision that could derail the entire push to save Athens from bankruptcy.
According to a memo from an IMF board meeting Wednesday, Greece is now disqualified from getting any more money from the bank because of high debt levels and its long history of failing to deliver on promised reforms. Now, the IMF says it would wait months — possibly even until next year — to free up its portion of the bailout. The Financial Times broke the news of the memo Thursday.
“The IMF can only support a program that is comprehensive,” an IMF official said in a telephone briefing with reporters Thursday. This “will take some time” before Greece and its creditors can lay the groundwork for a new IMF program, the official added.
Steve Hanke, a professor of applied economics at Johns Hopkins University, told Foreign Poilcy that the IMF move was “a complete surprise.”
“It gets complicated because the IMF says they’re not going to pour more money into the thing,” he said. “The IMF probably won’t get paid back, and that creates all kinds of problems.”
Last week, the IMF — which wants Greece to get relief from some of its crushing levels of debt, something German Chancellor Angela Merkel has resisted — got rid of its existing bailout program for Athens. The bank decided its rescue package could no longer return Greece to a point where it could reenter private loan markets. Tsipras subsequently requested a new bailout deal. On Wednesday, the board declined to approve it.
The IMF’s participation in the bailout fund is crucial. Without it, German officials said the Bundestag, the country’s parliament, would not approve the bailout plan. And without Berlin’s participation — Germany is the largest contributor to the bailout fund — it would be difficult to come up with the cash to give Athens enough to pay back some of what it owes.
The IMF’s decision to withhold support is just one complication to the debt deal, which must be negotiated by August 20; bailout talks kicked off between Athens and Brussels this week. In order to free up funds from what is now known as the quadriga — the IMF, along with the European Commission, the European Central Bank, and now the European Stability Mechanism, an emergency fund to keep eurozone members on the verge of financial ruin solvent — Tsipras must push through the spending cuts, tax increases, and pensions reforms he’s promised.
The Greek prime minister is finding that it’s much easier said than done. His own party has largely abandoned him; 17 members of Syriza’s central committee, a body of 200 members that sets party policies, resigned Thursday. He has now called for a Sunday vote by members of his party on whether to accept austerity reforms in exchange for the bailout. It’s a risky gambit; if his party votes no, it would splinter his government and could lead to new elections in the fall.
“We have to agree that we can’t go on this way,” Tsipras said Thursday, adding that “the absurdity of this peculiar and unprecedented dualism” within Syriza has to stop.
But according to Hanke, the IMF withdrawal is a far more serious problem than these inter-party squabbles. Greek banks, which were closed for weeks, are now operating largely due to an emergency line of credit from the European Central Bank. The IMF holding back money, and the prospect that Germany could abandon the deal, could upend this scheme.
“If the European Central Bank isn’t paid back as a result of these various dominoes falling, they are not going to loan any more emergency liquidity to the Greek banking system,” Hanke said. “You’d have a whole insolvent banking system. You’d have to recapitalize the banks. But who’s going to do that? Europe would be out of the game. The IMF is already out of the game.”
“That leaves the Greek government, which doesn’t have any money,” he added.
Photo Credit: Thierry Monasse/Getty Images