May 19, 2016
Stratfor
The interests of International Monetary Fund Managing Director Christine Lagarde (l) and German Chancellor Angela Merkel over the issue of Greek debt relief diverge, a difference that could lead to another Grexit crisis this summer. (JOHN MACDOUGALL/AFP/Getty Images)
It may not have the same fireworks as the 2015 version, but the summer of 2016 could yet bring its very own Grexit crisis. This one will feature many of the same players as its predecessor, though in some cases, they will have changed roles.
In the 2015 iteration, Germany, the European Central Bank and the International Monetary Fund joined forces to stare down a recalcitrant (and highly indebted) Greece. At stake were the terms under which Athens would receive money to pay off the loans it took to bail out its faltering economy. The crisis unfolded while France, Italy and the European Commission counseled leniency from the sidelines. A year later, Greece is no longer rebelling. In fact, the very same government that resisted austerity measures is willingly taking its medicine in the shape of stringent reforms. But as so often happens after a victory, former allies are now fighting among themselves.
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The IMF, which, along with Germany, once advocated for Greek structural economic reform, is now clashing with its Teutonic partner as it tries to lighten Greece's debt load. The two former allies have differing priorities. With federal elections coming up in 2017, Germany's leaders are feeling the pressure of all the money Greece owes its taxpayers. The IMF, meanwhile, is driven less by politics than by its mandate to lend to distressed countries on terms that will not cripple them financially. Having done the calculations, it believes the current payback agreement is unmanageable for a country in Greece's position.
Now the former allies are at loggerheads over the country that once united them. Greece is running low on funds and has a sizable debt repayment due in July — just as it did in 2015 — requiring its creditors to structure a bailout package if they want to avoid a Greek exit from the euro. The easiest way to do this, considering the IMF's awkward position on debt relief, would be for the European countries to proceed with repayment negotiations without the organization's involvement. But this is something that Germany is unwilling to do.
Though the IMF promotes leniency on debt repayments, it also favors structural reform. Greece is now following that path, one that both the Germans and the IMF believe will lead the Greek economy toward self-sufficiency. A deal without the IMF would leave Germany alone among its eurozone peers, many of which do not share its zest for reform. Even last summer, much of Southern Europe and the European Commission — whose priority is for everyone to get along — called for a softer line to be taken on Greece.
As if on cue, Germany's Mediterranean adversaries have chosen this moment to publicly air their unity. A meeting of Europe's socialist leaders will convene May 20, including the leaders of France, Portugal and Italy, which is hosting the summit; Greek Prime Minister Alexis Tsipras will also be attending as an observer. At a similar meeting in December, Italian Prime Minister Matteo Renzi urged his socialist brethren to unite against German dominance in Europe. Debt relief and the conditions of a Greek bailout would seem a choice arena in which to demonstrate their collective resistance.
Consequently, Germany wants the IMF to back down and agree to the bailout without requiring debt relief among its conditions. German Finance Minister Wolfgang Schaeuble's latest statements indicate that debt relief may be considered, but only in 2018 — safely after Germany's national elections — and that the IMF should sign off on the timeline now with the longer term in mind.
But so far, the IMF is sticking to its convictions, and, for various reasons, it will be less amenable to European persuasion than it was in the past. Some of these reasons trace back to the first Greek bailout back in 2010, when the IMF broke its own rules, agreeing to contribute to Greece's assistance package even though the suggested terms did not meet its normal lending standards. This strengthened the widespread feeling that the United States and the European Union held outsized sway over the IMF, which is supposed to be a global institution. In December 2015, the United States finally ratified a 2010 reform of the IMF, designed in part to redress this imbalance. As a result, the IMF of 2016 answers to a more globally diversified set of voters than the IMF of a year ago did. Furthermore, German and EU influence within the institution have been greatly reduced.
And so the summer will bring with it the possibility of a new standoff over Greece. Without the colorful characters from last year (former Greek Finance Minister Yanis Varoufakis springs to mind), the spectacle will likely be less dramatic. Since neither side is threatening its own suicide — as Greece was — the rhetoric will probably be less emotional. Indeed, there will probably be fewer tense moments than there were last year, since this time, neither side is willing to let disaster strike on its watch. Nevertheless, the same high-stakes game of brinkmanship will be played out. But this time, Greece will be playing the role not of the pugilist but of the wide-eyed victim in the middle.
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