IMF to Call For European Reforms
The US dollar gained on the euro and is now on track for its largest quarterly gain vs. the multi nation currency since 2008. The euro is still struggling in currency markets as European leaders try to find a solution for Greece’s debt crisis. The dollar gained 0.9% against the euro trading at $1.3410. On Friday the euro gained slightly as EU leaders agreed to provide loans to Greece with IMF aid. The IMF remains unsure of what its role will be in providing financial aid to Greece. The IMF said it was monitoring events in Greece closely. In a statement the IMF said, “We are following developments closely. And as we have said earlier, the Fund always stands ready to consider a request from a member country for our financial assistance.” The IMF’s website said that IMF Managing Director Dominique Strauss-Kahn will most likely call for closer cooperation and European economic reforms. The IMF is facing a dilemma since Greece falls under EU rules and monetary and exchange policies are set by the European Central Bank making it difficult for the IMF to set conditions for aid to Greece.
Merkel Imposes Tough Conditions
Under the EU agreement Greece will receive bilateral loans from other euro zone countries and the IMF may intervene should Greece face severe problems. An unnamed IMF source told the Reuters news agency that Greece is not expected to seek IMF aid anytime soon. Tough conditions imposed by German Chancellor Angela Merkel mean that loan mechanisms could only be activated by severe economic conditions. It remains unclear what conditions Greece could activate the EU loan mechanism and when Greece could seek IMF aid. Last Thursday Greek Finance Minister George Papaconstantinou said that Greece would prefer to acquire finding through financial markets. Many analysts have said that Greece may be allowed to borrow between 20 billion to 22 billion Euros from the IMF.
IMF Role Unclear
Former World Bank official and a Washington-based Carnegie Endowment for International Peace Uri Dadush said it was unclear who would lead intervention. Dadush stated, “While I greatly welcome the IMF’s involvement as a big step forward nevertheless the agreement as outlined has enormous ambiguity and therefore is unlikely to have the desired effect on the market.”He also said that since the ECB sets monetary policy for the euro zone the IMF may have to be aggressive on fiscal and structural reforms. The IMF may question European policies making some EU members uneasy. Dadush said, “In another context countries would welcome this with open arms, but what this is in effect is a new, somewhat unpredictable element for the euro zone”
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