| Why Are the French So Determined To Run The IMF – And What Will It Cost You? |
The Baseline Scenario, Simon Johnson, 03/06/2011 (traduire en Français  )
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Why does this make sense?
It doesn’t – unless you understand that the goal of these various bailouts is to ensure that German and French taxpayers do not realize the full extent of their losses or the ways in which their banks have been completely mismanaged.
Take the most generous interpretation of IMF lending to Greece – it is like the U.S. Troubled Asset Relief Program, in the sense that there will be a great deal of outlay but all or most will be repaid in nominal terms.
Such lending could be made just as easily by other eurozone countries, either from current resources or by borrowing in the markets – for example, Germany has plenty of fiscal credibility and issues some of the lowest risk sovereign debt available. But even if the money lent to Greece in this fashion were all paid back, this would look bad – to German voters (and to French voters, as France would have to lend also).
Such loans are much more risky than commonly supposed. The IMF does eventually get its money back nominally, but not always in real terms (adjusted for inflation) and definitely not on a risk-adjusted basis (i.e., the interest rate charged does not include proper compensation for the risks being taken). There is a very real possibility that some or all of the monies lent will not be paid back in the foreseeable future.
The International Monetary Fund is, in this regard, essentially a credit union owned by 187 countries – with voting based on ownership shares that reflect relative economic size. The European Union “owns” about 30 percent of IMF, so 70 percent of any money at risk belongs to other countries: about 17 percent US, 7 percent Japan, 35 percent emerging markets, plus some more mixed sets of countries.
If Ms. Lagarde becomes managing director she can directly influence the terms of IMF involvement – and based on her negotiating position to date within the eurozone, we can presume she will lean towards more money, easier terms, and above all no losses for the banks that made foolish loans.
the eurozone leadership, under French guidance, will go for the Full Bailout option, in which all Greek debt is bought up by the IMF, by the European Central Bank, and by other eurozone entities. This debt will be held to maturity – and any creditor who did not yet sell will be made whole (those who already sold at a loss are out of luck).
This course of action will be expensive, in terms of nominal outlays and in real risk-adjusted terms, because whatever terms Greece gets must also be offered to Ireland and Portugal.
The French want to sway decision-making at the IMF in order to use US, Japanese, and poorer countries’ money to conceal from their own electorate that the eurozone structure has led all its members into serious fiscal jeopardy – some borrowed heavily, while others let their banks lend irresponsibly and thus created a large contingent liability.
The best way to hide the true cost is to have other people’s taxpayers foot the bill, preferably with the least possible transparency. There is a lot at stake for eurozone politicians. Ms. Lagarde will run the IMF.
Y a pas à chier. Le pays de minables escrocs qu'on est devenus est incontestablement un phare pour l'Humanité
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