IMF says it's willing to help Greece. Will Europe follow suit?

IMF officials have voiced their willingness to assist Greece. Now the European Commission and the European Central Bank must decide how to move forward following Greece's 'No' vote on Sunday. 

Yannis Behrakis/Reuters
Newly-appointed Finance Minister Euclid Tsakalotos reacts during a handover ceremony in Athens, Greece, July 6, 2015. Greece's top negotiator in aid talks with creditors, Euclid Tsakalotos, was sworn in as finance minister on Monday after the resignation of Yanis Varoufakis.

Even after Greek citizens overwhelmingly rejected the country’s creditors during a referendum Sunday by voting not to accept the conditions of an offered bailout program, the International Monetary Fund wants Greeks to know it will come to their rescue if called.

While European leaders bemoaned that Greek Prime Minister Alexis Tsipras and his government have “torn down the last bridges on which Greece and Europe could have moved toward a compromise,” IMF officials voiced their willingness to work with the embattled country.  

"The IMF has taken note of yesterday's referendum held in Greece," IMF Managing Director Christine Lagarde said in a statement Monday. "We are monitoring the situation closely and stand ready to assist Greece if requested to do so."

The IMF’s readiness surprised some spectators who wondered why the organization was using such lenient language compared to the other creditors. But some experts say the IMF is taking a conciliatory tone because it sees the fallacy in the stance of the European Commission and the European Central Bank, which insisted on keeping debt restructuring off the negotiating table.

“The IMF agrees that debt needs to be restructured, as do most economists. It has made no secret of this, yet it has consistently soft pedaled when it came to dealing with the rest of the Troika,” Simon Wren-Lewis, Professor of Economic Policy at Oxford University’s Blavatnik School of Government, wrote on his blog Mainly Macro.

“Vague promises to look at this after a deal had been agreed would never be enough for Syriza to sell the deal… It [the IMF] clearly had the political power to face down European governments on this issue, and if it had done so a deal could have been achieved,” Professor Wren-Lewis continued.

Moreover, numerous experts and insiders have noted that Greece’s economic failure has shaken the reputation of the IMF, which openly admitted to making mistakes while following the lead of its European counterparts.

"I think the IMF has missed the opportunity (on Greece), because it has not fully leveraged the lessons it learned from the previous crises it was involved in, due to this asymmetric relationship within the Troika," Domenico Lombardi, a former IMF board member, told Reuters.

And Jacob Funk Kirkegaard, a fellow at the Peterson Institute in Washington, also noted:

"When it was clear that the Greek program was underperforming, they [the IMF] did not push back sufficiently against the euro zone, which had at the time a misguided policy emphasis on only austerity.”

Now that the Greek people have decided the country should default on its loans rather than agree to the additional austerity measures the Troika planned to foist upon it, the IMF is expressing its willingness to find an alternative solution that would allow Greece to avert disaster. A collapse of Greek banks, an exit from the Euro zone, a return to the drachma, and even, an exit from the European Union, are all potential options looming ominously in the not-so-distant horizon.  

Meanwhile, Mr. Tsipras has stressed that the results of Sunday’s referendum do not imply that the Greek people wish to leave the Eurozone. He also reiterated his readiness to reenter negotiations.

On Tuesday, the Eurogroup of finance ministers will meet in Brussels to consider any potential new proposal from the Greek government, and to discuss how to move forward.

Nevertheless, it remains far from certain the two sides will reach a deal they can both accept before Greek banks run out of money.

“Analysts were generally downbeat about prospects for a deal,” the Washington Post reported Monday.

Malcolm Barr of JPMorgan Chase, meanwhile, wrote that a “Greek exit from the euro appears more likely than not.”

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