The Eurogroup offered a cold reception to IMF’s director for Europe

Jeroen DijsselbIoem, President of the Eurogroup. (Council of the European Union, 9/12/2013).

Yesterday’s Eurogroup was devoted rather to the…IMF than to the burning issues of Eurozone, like bank recovery and resolution and deposit guarantee schemes. Probably the reason for this change was that Reza Moghadam, the IMF’s European Department director, was present and his main criticism of Eurozone’s economy was that it suffers from “weak banks and over-indebted public sectors caught in a vicious cycle”. Probably the 17 euro area ministers of Finance didn’t want to discuss exactly that in the presence of an IMF Director being in Brussels on official Article IV mission.

In any case “Eurogroup ministers broadly agreed with the International Monetary Fund’s assessment of the euro area’s economic outlook and on where action continues to be needed”. This was the least the Eurogroup could say about IMF’s assessment of euro area economy.

According to the Fund, “Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board”. In short Moghadam was there to gather information on Eurozone. Presumably the 17 ministers preferred that he finds the information he wants by himself. That’s why they avoided conducting a detailed and open discussion about Eurozone’s banking and sovereign indebtedness problems. As Jeroen Dijsselbloem, the President of the Eurogroup, put it “It was a comparatively short meeting”.

IMF not welcome any more

Discussions in the Eurogroup are usually to the point and ministers feel free to tackle burning issues with an open mind. This is what the Eurogroup avoided yesterday. In the ECOFIN, which comprises all the 28 EU ministers of Finance and invariably takes place the next day after the Eurogroup, the atmosphere is very typical and there are no moments of self-criticism or confessions for the IMF ‘intruder’ to hear.

So the IMF Director yesterday heard what the 17 Ministers wanted him to hear. Today in the ECOFIN the issues will be unquestionably of paramount importance, like the Single Resolution Mechanism for failing banks. However the discussion will cover the well-known differences between member states on those matters and Moghadam will learn nothing more than the journalists around. In any case whatever decisions are to be taken today in the ECOFIN will be published in detail.

Relations between the European Union and the IMF had turned sour over the last months, because the IMF insists on two very important policy lines. First that Germany should abandon its internal and Eurozone austere policies and start spending more to help the European and the world economy to start growing again. Secondly the IMF also insists that the excess sovereign debt of Greece should undergo a good haircut, otherwise the country cannot escape from the trap of recession and over indebtedness. Again many Eurozone countries do not accept that.

In any case the IMF didn’t come to the euro area uninvited. In April 2010 the Fund was asked by the Eurogroup to help Eurozone bail out Greece. It was only weeks or days before the country was heading to insolvency. From that time onwards the IMF became the standard third-party of the ‘troika’, together with the Commission and the European Central Bank. The three undertook also in the financing and the auditing of the other two Eurozone countries, which later on asked for help, namely Ireland and Portugal. Actually the German Bundestag has voted on that. Over the past months though, many Eurozone dignitaries have expressed reserves over the IMF’s presence in the euro area.

Broad agreement?

It is very characteristic how Ollie Rehn, the Commission Vice-President commented on Moghadam’s recommendations for the Eurozone economy. The Commissioner said “we very broadly agree with the IMF’s assessment of the recent developments and challenges facing the euro area, which we discussed this evening”. Mind you the word ‘broadly’ here may also mean ‘a little’.

Jeroen Dijsselbloem’s reaction, to what the IMF Director had to say, was almost identical to Rehns’. The President of the Eurogroup stressed “on the IMF interim article IV mission, we basically agreed with the Fund’s findings both on the economic outlook as well as risks for the Eurozone, broadly shared the IMF’s views about main policy areas where action is needed”.

Al in all the IMF’s representative received a rather cold reception in Brussels yesterday and things do not seem bound to change in the future. As for the three programme countries under the scrutiny during the Eurogroup yesterday, nothing new came up. Ireland is OK and plans to abandon the troika’s surveillance very early next year. Cyprus efforts were recognised and Nicosia got what it wanted. Last but not least Greece continues to be under stress and the Eurogroup had it both ways with Athens, offering carrot and stick.