The meeting of eurozone finance ministers early this week was overshadowed by the arrest of the head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, for an alleged sexual assault. Strauss-Kahn, whose organisation has contributed to rescue packages for Greece, Ireland and now Portugal, had been due to attend further discussions of the single currency zone’s sovereign debt crisis. At the summit, finance ministers finally approved Portugal’s bail-out. They also continued to debate a solution to the crisis in Greece, which is falling behind on its austerity programme.
What the commentators said
Strauss-Kahn’s arrest left the IMF without a figurehead at the summit. But as Stephanie Flanders pointed out on BBC.co.uk, the notion that his arrest will have far-reaching consequences for the eurozone crisis looks overdone. He had been expected to resign soon in any case in order to run for president of France. Besides, the IMF team that has been assessing Greece’s progress will be able to formulate a plan without him. The question of what to do about Greece was only going to be officially tackled in June once the report from the IMF – in conjunction with European bodies – is released. An interim version of the report, showing that Greece’s privatisation programme has stalled, was seen at this week’s summit.
For now, ministers are struggling “to keep a consistent line”, said Economist.com. Luxembourg’s prime minister said that Greek debt could be reprofiled, which involves extending the maturities on the debt. But France’s Christine Lagarde insisted that even this mild form of restructuring was a no-go. Given Greece’s massive overall debt load, reprofiling “would not go far enough” in solving the problem, noted Economist.com. Some of the debt will have to be written off – “and probably not just in Greece”.
Enter Portugal, whose rescue package will do nothing to allay fears of a default, said Capital Economics. The interest rates on its European loans are higher than expected: it will be forking out 17% of GDP on interest over the next seven years. Politics could hamper fiscal consolidation, with a coalition likely to be elected in June. Finally, with a long recession likely, the programme’s growth assumptions look optimistic. Policy-makers may soon be discussing extra help for Portugal too.