Germany backtracking on IMF involvement in Greece
News reports are now surfacing that the Germans are open to IMF involvement in the Greece sovereign debt crisis. This is a 180-degree turn for the German finance minister who has expressed vocal opposition to the IMF’s involvement in ‘internal’ European Union affairs.
Bloomberg reports Germany making the shift to avoid being boxed in by a bailout pledge:
“We have to think about who has the instruments to push for Greece to restore its capital-markets access” if ultimately needed, Michael Meister, a lawmaker with Merkel’s Christian Democratic Union, said today in an interview in Berlin. “Nobody apart from the IMF has these instruments.” Attempting a Greek rescue “without the IMF would be a very daring experiment.”
The German shift underscores Merkel’s attempts to steer clear of any commitment to a Greek bailout and risks scuttling European Union efforts to establish a contingency plan for the debt-strapped nation. Merkel used a budget speech in parliament in Berlin today to caution against “overly hasty” pledges of financial support.
The position the Germans seem to be taking is the one I outlined back in February (see The Germans will not bail out Greece). However, the situation is still fluid and there is widespread resistance to the IMF’s involvement. My sense is that the Germans do want to move forward with a European Monetary Fund going forward and are now laying the groundwork even if that means involving the IMF.
The plans for the European fund allow for the expulsion of a serial violator of the stability and growth pact. German Chancellor Angela Merkel is now pushing the euro expulsion line because it fits with the Germans’ vision of the EMF.
Greek Prime Minister Papandreou had threatened to go to the IMF over EU objections if he did not receive assistance. This threat has been nullified.
The next move now falls to Greece.
What do you think of the contention that the US and AIG are exposed to CDS’s in Greece? That is, if Greece defaults, the US taxpayer might be on the hook for more of these “risk management” innovations?
No one knows if AIG is exposed to a Greek default because the CDS market is unregulated. The US government may not know. They won’t release AIG emails to determine if there was a cover-up in the AIG bailout, perhaps because they haven’t even checked them. So I wouldn’t be surprised if US officials are in the dark as well.
Possibly German bankers bought some CDS to cover/insure their investments in Greek bonds but they may have realized that somebody cannot pay those CDS. Should Greece default and see?
My understanding is some German banks sold CDS too. That’s one of the problems with Greece defaulting.
But doesn’t the government own AIG now? Pardon my lack of knowledge. Is it
possible that with an ownership stake they can still be in the dark?
you and I know full well that the Government owns AIG. However, the government is still pretending that, although they are the majority owner, that AIG is still a private enterprise. Somehow, mysteriously, the government has failed to use its ownership stake to reveal any malfeasance. I can tell you that everyone who wants to see better regulation is outraged by this. You’ve seen Eliot Spitzer writing Op-Eds to get them to release the emails. But they won’t.
Eventually if there is no other plans let Greece to orderly default on some bonds and German and French banks which invested into the country without “due diligence” will simply acknowledge their losses. It’s like the sub-prime experience: if banks continue to invest in junks without further analysis, governments and other international organisations should not continue bail them out. I must say that in this respect German bankers are unfair: they invest in sub-primes or in bonds with high interest rates and lower rating, then when their bets turn sour they go back to governments and ask for help. Can we stop this?
https://mgiannini.blogspot.com/2010/03/euro-zone-stress-test-or-how-pigs-could.html