Will Greece Go To the IMF?

With Greece and other troubled euro-zone economies having surrendered monetary policy to the European Central Bank, the crisis brewing in Europe seems tailor made for the "new IMF" to ride to the rescue. But EU leaders will try hard to keep the IMF out for entirely self-interested reasons, which is bad news for Greece – and for anyone who cares about global financial stability.

WASHINGTON, DC – Traditionally, “you should go to the IMF” was not something you would say to friendly neighbors and close allies. Over the past few decades, the International Monetary Fund became associated with excessive fiscal austerity, extreme political insensitivity, and – since the Asian financial crisis of 1997-1998 – with an out-and-out stigma. Countries borrowed from the IMF only under duress, when all else failed – and when there was simply no other way to pay for essential imports. (For Iceland in the fall of 2008, for example, the only alternative to IMF financing was to eat locally obtained goods, which mostly means fish.)

But the IMF has changed a great deal in recent years, largely under the auspices of Dominique Strauss-Kahn, its current managing director. Strauss-Kahn, a former French finance minister and contender for the Socialist nomination for the French presidency, has pushed through changes that allow the IMF to lend without conditions in some circumstances, and to give greater priority to protecting social safety nets (including unemployment benefits and healthcare systems). He has also moved the Fund decisively away from its obsession with fiscal austerity measures (a big early mistake – with lasting traumatic consequences – in Indonesia and Korea in late 1997).

Greece undoubtedly has serious problems today. T he great opportunities offered by European integration have been largely squandered. And lower interest rates over the past decade – brought down to German levels through Greece being allowed, rather generously, into the euro zone – led to little more than further deficits and a dangerous buildup of government debt.

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