The Greek Bailout Odd Couple

17/6/2016

By Jim Brunsden

“Which debt relief agreement are you talking about?”

If anyone had any doubts that Christine Lagarde, the managing director of the International Monetary Fund, doesn’t think much of the debt relief deal for Greece that was struck last month by the Eurogroup, these should have been firmly laid to rest by her comments a press conference in Luxembourg on Thursday.

Asked about what she thought of the outcome of euro area finance ministers’ marathon meeting last month on Greece, which reached some tentative agreements on easing Athens’ massive debt burden, Ms Lagarde appeared to question whether it amounted to a meaningful breakthrough at all.

“Which debt relief agreement are you talking about?,” Lagarde said, before smiling conspiratorially. “I think you have my response in my question actually.”

The issue of debt relief has become central to the roll out of the €86bn euro area bailout of Greece that was agreed on by euro area leaders last summer. The IMF has refused to take part in the programme unless relief is granted, and has challenged what it says are over optimistic EU predictions for the recovery of the Greek economy.

The IMF stance has been a political headache for Germany, Finland and the Netherlands, where IMF participation is essential to maintain even existing threadbare levels support for the Greek bailout among their electorates and parliaments, but the appetite for debt relief is next to nil.

The upshot was last month’s deal, where ministers and IMF officials agreed to a range of measures to restructure Greece’s debts when its bailout ends in 2018 — but put no figures on the concessions and left them subject to political decisions by eurozone countries.

Ms Lagarde already sent a clear signal by not attending last month’s meeting (officially she had other business to attend to in Kazakhstan.) This was taken a sign of the IMF wanting to keep its options open for the time being, and also of a determination on the part of Ms Lagarde that IMF participation shouldn’t be bought cheaply. That trip to Astana gave her distance while avoiding the risk of forcing a political confrontation at a sensitive time.

So we are left with unfinished business. This message was rammed abundantly home at Thursday’s press conference, which followed a Eurogroup meeting in Luxembourg where Greece (perhaps mercifully) was actually not on the agenda.

Starved of the opportunity to ask Ms Lagarde of her views last month, the press seized on the occasion this time. You can watch the edited highlights here.

Following her joke, things quickly took a turn for the odd. So determined was Ms Lagarde to distance herself from last’s month’s negotiations, she became worried at one point that she might have overshot.

“It’s a bit difficult for me to comment on an agreement that we are not actually signatory to at this point in time,” she said, before suddenly turning to Jeroen Dijsselbloem, Eurogroup president, and asking: “or were we signatory? I don’t think..we were participants, but we were not…”

“Your people were certainly there and they were part of our conversation for a long time,” Mr Dijsselbloem, sitting beside her, shot back.

Ms Lagarde had a last attempt at clarifying: “what I’m saying is that, while there clearly were some proposals, embedded in that agreement…we also believe that for us to be engaged under a programme a debt operation would have to be assessed on the basis of a new debt sustainability analysis” to be measured “later on.”

Mr Dijsselbloem sought to end the exchange on a glass half-full note:

The fact that the work on the debt relief is ongoing means that asking at this stage whether it is enough is “not a fair question,” he said. “I can’t even answer whether it is enough, that is the work we are doing.”

Further fleshing out of the measures, a new debt sustainability analysis and fresh forecasts are all needed, he said. “So that is how we are going to do it, and as far as I’m concerned we are going to do it together,” he said. “Any more questions?”

It’s happy times ahead for the Greek bailout’s odd couple.

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