IMF buys Europe time to patch the Greek debt crisis

06/16/2011 2:06 pm EST


Jim Jubak

Founder and Editor,

The International Monetary Fund has decided not to stick to the letter of the rules. The IMF executive board has signaled that it will release the next $17 billion in rescue funding for Greece in early July on a promise from European leaders that they will supply financing to get Greece to 2014. A strict interpretation of the IMF rules would have required actual concrete commitments from members of the EuroZone. And concrete commitments didn’t look likely on a schedule that would have released funds in July that Greece needs to keep functioning amidst wrangling between Germany and the European Central Bank on whether or not current bondholders should be required to pick up part of the cost.

The IMF’s decision—or actually its signal that this is the way it is likely to decide—buys time for EuroZone members to reach a deal on a second rescue package for Greece, one that will get the country to 2014 now that it’s obvious to all that hopes that Greece would be able to tap the financial markets again in 2012 were outrageously optimistic. It’s now clear that there won’t be a deal in time for the European summit on June 23-24 as originally hoped. European financial and political leaders in recent days have started to talk about reaching a deal in July—but without a signal from the IMF that it would release the cash necessary to buy more time.

Of course, buying more time to reach a deal also means more time for all the parties to demonstrate their political dysfunctionality. For example, after saying he would step down in favor of a national unity government, Greek Prime Minister George Papandreou failed to reach a deal with opposition leader Antonis Samaras, and instead announced a cabinet reshuffle to be followed by a parliamentary vote of confidence in the government.

The Greek parliament still has to vote this month on as new $40 billion austerity package that has been promised to the European Union and the IMF as a condition for a new rescue package.

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