As I've written on several occasions, the only player with the power to alter Europe's disastrous demands on the long-suffering Greeks is the International Monetary Fund. Yesterday, the IMF acted.
In a stunning rebuke to the Germans and the rest of the sadists leading Europe's Greek policy, an unnamed senior IMF official yesterday warned that Greece needs massive debt relief, at minimum $85 billion, or its economy will never recover and it will never be able to pay the rest of its debts. This is exactly what European officials have refused to concede.
This welcome and bold IMF stand throws a useful monkey wrench into the humiliating deal extracted over the weekend-especially since the IMF is one of the three entities that is supposed to enforce the deal. Conceivably, if Greece now were to decided to thumb its nose at Germany and the other brutal austerity-masters, the IMF could underwrite an alternative course.
One possibility would be for Greece to leave the euro and return to the drachma-but not as a punishment, as contemplated by the worst of the lot, German finance minister Wolfgang Schäuble. Rather, the IMF could provide new aid to Greece to make such a transition a plus for the Greeks by getting Greece out from under German diktats.
This brings the IMF full circle to the role proposed by its leading architect, John Maynard Keynes, when the IMF was created in 1944-to prevent foreign payments difficulties from pushing nations into self-deepening austerity. After a detour into the austerity camp, the IMF is returning to its roots.
Where did this change of heart come from? Economists at the IMF have long chafed at the absurd economic premises of the European leaders. But they key player in this surprise move was the IMF's biggest shareholder, the United States.
Behind the scenes, the Obama administration and especially Treasury Secretary Jack Lew have been pressing the Germans to give the Greeks more room to breathe-to no avail until now. The IMF move was done with the full knowledge and encouragement of the United States government. Kind of makes you proud to be an American.
This was a good week for President Obama. The IMF move on Greece was overshadowed by the breakthrough in the nuclear talks with Iran. But if this latest IMF play, promoted by Washington, should prove to be a game changer, it will be as important a diplomatic achievement.
