In the hardnosed business of Europe’s economic rescues, this was as close to kiss-and-make-up as they get.
One month after the European Commission and the International Monetary Fund openly feuded over the strategies they used in the bailout of Greece, the organizations’ leaders couldn’t say enough to paper over their differences.
“It has not always been completely plain vanilla from the first day,” said IMF chief Christine Largarde, as she sat with the European Union’s Olli Rehn in the press conference after Monday’s meeting of the euro area’s finance ministers. Earlier, they together agreed to provide the next installment of rescue loans for the Mediterranean nation.
Sitting on the same dais as Lagarde, Rehn, the EU’s economic and monetary affairs commissioner, called the feud a “storm in a teacup.”
That was a stark departure from to last month when he said Lagarde’s IMF role was throwing the “dirty water” on Europe in a report that blamed some notable failure in handling Greece’s 240 billion euro ($310 billion) bailout on its European partners.
The IMF and the European Central Bank and the EU’s executive arm, the Commission, form the so-called troika of creditors that manages the bailouts for Greece and the other three euro countries – Ireland, Portugal and Cyprus – that have received emergency loans. Rehn and Lagarde played starring roles in those bailouts.
The two were brought together as part of an emergency solution in the heat of Europe’s debt crisis. At the time, Greece was on the brink of a financial collapse that would have pushed it out of the 17-nation eurozone, with potentially devastating consequences for the group as a whole.
Both said that any differences expressed were made in the heat of the moment, as both had to improvise quickly on how to deal with a rapidly moving situation that the stretched the sense of financial imagination and rulemaking to its limits.
“Clearly, the troika chemistry is something we had to invent as we faced the crisis and as we had to put programs in place,” Lagarde said.
Still, Rehn said last month it was no reason for the IMF to try to whitewash its role in the crisis at the expense of the European Commission.
After they secured Monday’s agreement together, Rehn’s views had changed.
“It is natural that there may be some tensions, but we have been able to show that we work in practice, even though in theory it might it might not always be supposed to be working,” he said.
Still, Lagarde’s IMF got the last word, saying the eurozone risks being mired in low growth and high unemployment if they don’t get their banks lending again and urgently reform labor markets, in an assessment of the 17-nation economy on Monday.
The report warned that “centrifugal forces across the euro area … are pulling down growth everywhere” and that without serious reforms, the region could suffer long-term damage to growth.
The IMF identified four areas for action: problem banks need to be identified and helped so the whole financial sector has the confidence to lend; a unified set of banking rules need to be drawn up; the European Central Bank should continue its loose monetary policy; and countries must make their economies competitive, including by freeing up their labor markets.
So Lagarde was already looking forward to the day it would not have to worry about Europe anymore.
“If the IMF is not needed by the euro area, it is the best news of the day – when it comes. Because it means that countries in the euro area do not need support, which would be really fantastic news.” [AP]