The IMF vs. Germany

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The deal to save Greece from default has come down to a battle of wills between Germany and the International Monetary Fund. It was always likely this would happen, but the forces for the two parties to settle were also present. Those forces, based on the possible implosion of the euro, just could not hold back Germany’s need to keep the benefits of a rescue as modest as possible and the IMF’s desire to save as much of Europe as needs saving.

Germany’s problem is hard to decipher. Angela Merkel actually may believe that a large and generous bailout fund that would follow Greek aid, set up to help the next nation and the next, is a poor idea. There is no reason, she says, to tempt other countries to seek money. It is better to let them bail themselves out, if that is even possible.

Merkel also is under pressure from German voters who are tired of seeing their taxes move into risky bailout funds. Why should their success be used to reward the failures of others? If Merkel is afraid of her own electorate, her real beliefs about the need for more rescue money may be masked.

The reasons for the IMF’s goals are more straightforward. It has access to “other people’s money.” That capital will come from countries around Europe and from other interested parties, which include almost every well-to-do emerging nation and almost all of the developed world. Whether these nations like it or not, the futures of their own economies are at great risk if there is a financial collapse in Europe.

So, the battle between Germany and Greece may not be a philosophical one at all. The differences between the two may just be whose money is a stake, or who has skin in the game. As the bank of Europe, Germany’s risks are real, while the IMF’s are much less so.

Douglas A. McIntyre