Reforms that could keep Greece in the eurozone are looking increasingly unlikely to be introduced and the International Monetary Fund should lead efforts to ensure the country’s orderly withdrawal, according to Treasury select committee chairman Andrew Tyrie.
In a new pamphlet for the Centre for Policy Studies, The IMF and Europe: Some Observations, Tyrie says reforms to make the Greek economy more competitive or spread money from richer countries to poorer ones are increasingly unlikely to be introduced and so plans should be made for Greece to leave the eurozone.
He says that the IMF is “the only global fire brigade we have” with the detachment and economic credibility to sort out the crisis. The European Central Bank has bought billions of Euro’s of eurozone government debt but Tyrie says the problem is not one of liquidity but a much more serious one of solvency of government finances and says the IMF should take a tougher line with the ECB and the European Commission.
He adds that countries outside the eurozone should be encouraging this approach because of the potential impact of a ’Grexit’ or the wider crisis on economies outside the monetary union.
He says: “These will be testing times for Christine Lagarde – her credibility, as well as that of the IMF is on the line. At the moment the IMF is treating the ECB and the Commission as partners in discussions. This should end. Both European bodies have an existential conflict of interest.
“The IMF’s job would not be to decide among the policy choices but to evaluate them, present them to the eurozone governments, and put pressure on those governments to make a sustainable choice. Its influence could be decisive. Its judgement on the sustainability of any plan would carry enormous weight in financial markets. That fact considerably strengthens the IMF’s hand.”
Writing in the paper’s foreword, Chatham House director Dr Robin Niblett says: “The IMF should no longer serve as an ‘enabler’ of Eurozone fiscal and political mismanagement. Instead, it should return to its role as a detached and dispassionate adviser and, if necessary, as a key financial supporter of its European members.
“EU leaders and institutions have proven incapable not only of gauging their own vulnerabilities, but also of getting ahead of the curve in terms of agreeing upon a coherent set of policy steps and institutional initiatives.”