IMF insists on ‘clear vision’ as EU chiefs stumble through fog

EUROPE had another week teetering on the edge of the abyss, its leaders tied to one another in single file as they inched their way forward along the top of the cliff in dense fog.

But they survived another seven days and the relief was palpable. The 27 EU leaders were relaxed, almost light-hearted, as they left the Justus Lipsius building in Brussels earlier than expected at the end of their two-day summit on Friday.

They did indeed make progress on some of the interim crises thrown up over the past few weeks. They gave the Greek opposition leader a roasting over his decision to oppose the EU/IMF reforms in favour of his growing popularity in the polls at home where the government is not expected to last past this summer.

They accepted the assurances of the Greek prime minister that he would get the reforms passed by the parliament. And they feel they can now get private creditors to “voluntarily” extend their loans to Greece without triggering a default.

Behind the scenes, there was a seminal occurrence. Last Monday, when the finance ministers met in Luxembourg, the acting managing director of the IMF, John Lipsky, was there also to give the IMF’s annual assessment of the eurozone.

This normally passes unnoticed but since Germany insisted the IMF be brought in as chief enforcer and referee of eurozone member states’ bailouts, the body has become much more important. It is not just calling the shots when it comes to managing the eurozone crisis: it is plotting the way forward for greater economic integration.

It has called on the EU to “define a clear vision for the future — something that has been lost as leaders prioritise their own domestic power. It steps into the breach left by the almost sidelined European Commission, setting out the “few crucial additional steps needed in nearly all areas” to create a single eurozone economy and quell the crisis.

The IMF report expresses more faith in EU integration becoming a reality than is to be found in Brussels and it makes the IMF appear more European than the Europeans.

But, having given them the whip hand, nobody should expect the relationship with the IMF to be benign. This was illustrated when they insisted on following their own rules and threatened to hurl Greece into default a few weeks ago when they judged the country would not be solvent in 12 months, as required under IMF rules.

The IMF persuaded the EU to effectively guarantee their money by agreeing a second bailout to ensure the country can pay its bills over the next year.

This is where German Chancellor Angela Merkel introduced another surreal element into the drama by insisting that private lenders must shoulder part of this burden. The credit rating agencies retorted that any such action imposed on the private sector would be considered a default.

The intervening weeks have been spent finding a way through this conundrum. It looks like it is on track thanks to the EU’s ability to create seemingly intractable problems and come up with a sleight of hand to resolve them.

But the EU is still a long way from the “clear vision for the future” demanded by the IMF. Whether Christine Lagarde, expected to take over the helm next month, will be able to insist on this is unclear. Or perhaps it needs an American in charge to lead the way.