7 february 2010, bring in the imf

Sunday 7th February 2010

UK commentators continue to “big up” how greece’s chronic deficit is going to affect the euro, with regular “euro zone break up” doomsayers out in force. Absolute nonsense. There is no way out (see 16 jan), nor does anyone want one. Though the euro has certainly felt it, the real reaction has been on the bond market, i.e. the focus is on can greece perform. As it should be. The words stone, throw and greenhouse spring to mind: the uk’s time in the bond market spotlight will come. At that point, sterling can devalue, which greece can’t. But all that does is force the spotlight where it should be: on cutting greek spending and making the deep structural reforms desperately necessary in the eu's biggest laggard. Ireland (now, quickly) and germany (over many years) shows it is possible. Greece must cross the rubicon. Commentators also say that things are so far gone, and greece’s credibility so shot, that we need the imf. I agree. For all that greece’s problems are greece’s fault, the utter powerlessness of the euro area’s fiscal framework could not be more apparent. For all the well-meaningness of the stability and growth pact and the commission’s strenuous efforts to impose fiscal discipline, the fact that greece is so far gone shows up the chasm between aspiration and delivery. Nor is this an isolated case: portugal’s deficit rose from 2.7% in 2008 to 9.3% last year. Greek delivery will be very tough. Do we really want greeks on the streets demonstrating against cuts dictated by brussels ? Brussels is a mate, not the benign dictator the situation calls for - and a role in which the imf has an unsurpassed record. And europe’s influence within the imf is enormous enough to avoid anything it really doesn’t want to happen. So: bring in the grim reaper, do the job, feel the pain and exit the programme strengthened and with some credibility. Brussels – and frankfurt – should call in washington now.