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IMF Go Home

Eurozone finance ministers and the IMF have agreed with Greece to begin providing some debt relief to the country, and to release $10.3 billion in bailout funds. But all parties would have been better off had the IMF been cut out of the deal, in favor of greater reliance on European loans.

BRUSSELS – The curtains are up on another act of the Greek debt drama. Eurozone finance ministers and the International Monetary Fund have agreed with Greece to begin, per the IMF’s demands, providing some debt relief to the country, and to release €10.3 billion ($11.6 billion) in bailout funds. Greece, for its part, has agreed to another round of austerity and structural reform.

Until recently, the IMF insisted that it would participate in the next Greek rescue program only if it deemed Greek debt to be sustainable. Based on the IMF’s most recent debt sustainability analysis, that is not the case. Germany, however, insisted that the IMF remain on board – and, with the latest deal, it seems to have prevailed, in exchange for agreeing to debt relief that it opposed.

The victory may well not have been worth the sacrifice. In fact, it would have been better to let the IMF pull out, for two reasons. First, the IMF’s assessments of debt sustainability in Greece are undermined by a deep conflict of interest. Second, and more important, IMF credits are too expensive.

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