Last week, amid rumours that Greece intended to “get back to the global capital markets” to test its own ability to finance itself as the (third) Adjustment Programme arranged by the country’s European partners nears its end, there was a peculiar kind of brawl between the IMF and the ECB over the hapless Med country.
The Fund published its assessment of Greek debt - “exceptionally unsustainable” - and set out a series of preconditions for remaining onboard the Greek Programme. (The sum total of such preconditions makes it more than probable that the IMF is on its way out, once the German elections are over and Dr Schaeuble’s need to show his voters the Fund participating is also over). One of these conditions, although couched in careful language, is that the Greek banking system should be adequately (re)capitalized. The Fund puts forward the matter of a convincing asset-quality review of Greek systemic banks in the near future, with (equally convincing) stress tests to follow taking the extremely high level of such banks NPLs into account.
The ECB reacted in the most frigid way: “a spokesman” let it be reminded that the “supervisory priorities for the Greek banks are fixed for the next 12 months”. So - no go for any enhanced capital requirements for the Greek financial sector or anything of the sort. Should one read into this gentlemanly brawl of the two towering institutions of the global financial system an exit of the IMF from Europe and the creation of an “EMF”? (with Greece in the usual role of guinea pig - or canary in the mine). Probably yes.