IMF obstructionism may destroy Greece-eurozone accord

After weeks of arduous negotiations between the Syriza-led Greek government elected in late January and eurozone finance ministers (the so-called Eurogroup), a compromise agreement was reached on Tuesday.

The accord extends the current eurozone crisis loan to Greece, which was set to expire on 28 February, by an additional four months.

On Tuesday, the ministers endorsed the government’s reform plan for the coming months as outlined in a seven-page letter sent to the Eurogroup late Monday by Greek finance minister Yanis Varoufakis.

Hewing closely to the anti-corruption platform on which it was elected, the new government commits to increasing tax revenues by taking measures against evasion, smuggling of taxable goods and tax fraud.

In deference to the Eurogroup, it promises “not to roll back privatisations that have been completed” but it also commits to “review privatisations that have not yet been launched”, something Syriza said it would do during the election campaign.

The Eurogroup, acting on behalf of the European Commission, declared the reform plan laid out by the Greek minister to be “sufficiently comprehensive” and agreed to the loan extension.

However, the IMF broke ranks with its former Troika partner and criticized the Greece-eurozone accord for not requiring full implementation of the loan conditions agreed by the government defeated in the January elections.

In a letter sent to Dutch finance minister and Eurogroup chair Jeroen Dijsselbloem and posted on the IMF’s web site, the Fund’s managing director Christine Lagarde condemned the accord for “not conveying clear assurances that the [new] Government intends to undertake the reforms envisaged” by the former government.

Among Lagarde’s specific criticisms of the Greece-eurozone accord is the lack of “unequivocal undertakings to continue already-agreed policies … for labor market reforms” to which the previous government had committed.

These included new restrictions on the right to strike and on other trade union activities and elimination of any required advance notice of collective dismissals.

The IMF apparently objects to the Tsipras government’s rejection of further deregulation of the labour market, which along with the austerity measures has put a quarter of the Greek labour force out of work.

Instead, in agreement with the Eurogroup, Greece promises to “expand and develop the existing scheme that provides temporary employment for the unemployed” and to phase in “a new ‘smart’ approach to collective wage bargaining that balances the needs for flexibility with fairness … and over time raise[s] minimum wages … in consultation with social partners and the European and international institutions, including the ILO”.

Evidently, the IMF has quickly shifted from being the “good cop” in the European Troika as it is sometimes portrayed – which can probably be attributed to Fund’s skillful public relations apparatus more than anything else – to becoming the Troika’s “bad cop”.

The IMF’s rigid pro-austerity position could derail the Greece-eurozone agreement by strengthening anti-accord hardliners in parliaments that must ratify it, which include Germany’s Bundestag. Although technically the eurozone accord is separate from the IMF lending programme, some governments have insisted that Europe only make loan payments in conjunction with those from the IMF.

The IMF loan runs until March 2016 but disbursements are subject to quarterly reviews by the Fund’s board.

In her letter to Dijsselbloem, Lagarde in effect threatened to withhold further IMF payments on the basis of the agreement: “It is important for me to emphasize that for the discussions on a completion of the [IMF loan] review to be successful they cannot be confined within the policy perimeters outlined in the [Greek] Government’s list.”

Through its obstructionist stance, the IMF may yet succeed in destroying the fragile compromise achieved on Tuesday and re-launching the eurozone crisis.