By Jamie Robertson From BBC World News

The Greek crisis, having shaken the eurozone to its core, is likely to have a similar seismic effect on another massive institution, the IMF.
The International Monetary Fund’s exposure is small compared with the Eurozone.
In the 2010 bailout it paid out over €20.7bn and in the following 2012 rescue it contributed €11.6bn
The real threat is to its credibility as the world’s biggest multinational lender.
It is a story of conflict with Europe – and with itself.
On July 7 IMF managing director Christine Lagarde said that the situation in Greece demanded a restructuring of debt.
Chief economist Olivier Blanchard told the BBC a few days later that the IMF had been privately urging the European creditors for several months that sizeable debt relief was the only credible option.
By going public the IMF hoped it could swing the argument against the European creditors, in particular Germany who believed debt forgiveness was unacceptable.
In what was obviously a co-ordinated move US Treasury secretary Jack Lew came out with a near identical statement.
In short, they argued Greece’s debt position was unsustainable. There had to be restructuring.
Fraction
As the world knows, the agreement was proposed with Greece – without any debt restructuring at all, as the IMF stood by.
Now the IMF has made a dramatic attack on the deal, saying it will have nothing to do with it.
It’s a picture of fraction and impotence that could do lasting damage to an organisation that has been the world’s lender of last resort for 70 years.
Bailout graphic
The problem started when the IMF entered the euro crisis in 2010 with the European Central Bank (ECB) and the European Commission (EC) as part of the Troika.
Many believe that as an international economic institution it was on thin ice dallying with a political construct such as the euro, not to mention the European powers represented through the EC and the ECB.
Susan Schadler, Senior Fellow, CIGI and former deputy director, European Department IMF says: “It unleashed unusually severe political influence on the IMF, and in turn the IMF could not bring the full force of its vast experience in managing financial crises and ensure that all options for dealing with the crisis were put on the table and carefully considered.”
Perhaps more important, it broke its own rules.
Its Exceptional Access Policy, which allows nations in dire straits access to its funds, has four strict criteria.
Criterion number two requires that a “rigorous and systematic analysis indicates that there is a high probability that the member’s public debt is sustainable in the medium term”.
IMF officials in all honesty could not agree even back in 2010 that, with the kind of reforms and austerity measures needed, Greece’s economy could sustainably support the billions of euros of debt on offer.
However the criteria were tweaked, allowing the sustainability issue to be pushed to one side on the grounds that there was a real risk that the Greek crisis was a systemic risk to the international financial system.
Reputation
But the sustainability issue has come back to haunt the IMF, with Greece defaulting on its IMF debt, the first developed nation to do so.
Now, by demanding that Greece’s debts are “sustainable” it is quoting the very criterion it laid aside five years ago.
Ms Schadler says: “Better late than never, but it is very very late, and the five years has been damaging not just to its credibility but to its effectiveness in how it gets countries out of debt crises.”
By weakening the criteria by which it operates the IMF jeopardised its reputation as the world’s lender of last resort.
That reputation is crucial.
It has allowed the IMF to claim “preferred status” as a lender, i.e. it can generally demand to be first in line when a country pays off its debts. That standing as the leader of the world’s international lenders allows it to lend at low rates and impose strict conditions on its borrowers.
Certainly, those conditions have been the target of criticism over the decades.
Many believe it has been a slave to free market economics, imposed inappropriate privatisation programmes, tough spending cuts and high interest rates which can turn modest problems into full blown crises.
Critical position
There is truth in all of this. But it is also worth remembering the IMF’s Heavily Indebted Poor Countries (HIPC) Initiative has approved debt reduction packages for 36 countries, 30 of them in Africa, which over time is providing $76 billion in debt-service relief.
Philippa Malmgren, a former Special Assistant for Economic Policy to President Bush, believes the IMF is at a critical position in its history – because there are others only too ready to step into its shoes.
“China and other developing countries have been asking for changes in the way the IMF is run – and they have not got those changes. So they have gone off and set up an alternative, the Asia Infrastructure Investment Bank.
“Make no mistake, this is designed as a replacement for the IMF – a whole new architecture designed to funnel investment into China’s own markets and its own companies.”
“The IMF’s level of misjudgement here in Greece is of epic proportions. If you can’t save Greece how can you save bigger problems when they come along? Like France. Because the real problem isn’t Greece, it’s the bigger ones further down the track.”
For more on this story go to: http://www.bbc.com/news/business-33537445
Related story:
Greece in tatters: Why snap election can’t save nation in crisis

By Angelos Chryssogelos

Greece’s PM Tsipras resigns, calls for early elections 02:35

(CNN) Greece is headed for its fifth general election in the last six years … After convincingly winning an election in January 2015 on an anti-austerity platform and securing a triumphant win for “No” in the referendum on a bailout deal in July, Greek Prime Minister Alexis Tsipras is now ready to deploy his formidable electioneering skills in the service of the harshest and most far-reaching austerity program Greece has ever agreed upon.

The reason for calling this election is fairly straightforward: After the agreement between Greece and its creditors on July 12, Tsipras has been leading a government and a party completely at odds with its ideological identity and electoral pledges.

His decision to reach an agreement that keeps Greece in the eurozone at the cost of more austerity caused a rift with the left wing of Syriza. This created the paradoxical situation whereby austerity measures were being passed in the Greek parliament with the support of the much maligned pro-European opposition, while the Syriza-left was staying part of the Syriza parliamentary group but was voting against them.
Greek reforms lets creditors pull the strings

Tsipras is now hoping to legitimize his pro-austerity turn with a new popular mandate.

Should Syriza win an absolute majority of seats, Tsipras can claim that the Greek people have effectively approved his decision to agree with the eurozone on a new bailout. He will then have a mandate to implement the terms of the bailout leading to a more coherent government.

Should Syriza fail to win an absolute majority, Tsipras will be forced to look for a coalition partner. He might try again with his current coalition partner, the Independent Greeks, but if they fail to clear the 3% threshold to enter parliament, he would have to turn to one or more of the pro-European centrist parties (PASOK, To Potami, perhaps even New Democracy).

Tsipras’ rhetoric has been very antagonistic towards these parties, but again, he can claim that it is the people’s mandate that calls for the formation of a coalition government. In both scenarios, Tsipras is looking for one final popular legitimation of his shedding of the last traces of his vehemently anti-austerity identity.

Closed-list system

The timing of the elections is not coincidental. Tsipras is trying to have the elections staged as quickly as possible, so as to allow as little time as possible for the Syriza-left to organize as a new independent party. At the same time, as the elections take place less than a year after the last elections of January 2015, constitutionally they must take place under a closed-list system. Normally in Greece, parties run open lists of candidates in multi-member constituencies.

These candidates campaign individually to gain preference votes from the voters of their party lists. With a closed-list system, party leaders draw up lists where each candidate’s place is predetermined and voters only vote for parties but no candidates. This gives substantial leeway to party leaders to control who forms their party’s next parliamentary group. Tsipras will certainly lead a Syriza party that will be completely under his control in the next parliament.

Syriza will certainly come first, but it is difficult to say what its final tally will be. It will almost certainly lose votes to its left (the new anti-austerity breakaway, the communist KKE, and other smaller radical parties); but it will also gain votes on the center from voters who see in Tsipras the only viable force of stability at this juncture.

This in turn will further pressure smaller center-left parties like PASOK and To Potami. PASOK in particular may face a difficult battle to even make it in parliament at all, having just elected a new rather uninspiring leader. Tsipras’ current coalition partner, the Independent Greeks, will also face losses. New Democracy currently has an interim leader and is almost completely directionless.

The only certain winners will probably be the Neo-Nazi party of Golden Dawn, buoyed both by Tsipras’ “treason” and by the severe immigration pressures Greece faces. The danger is that this election will produce no winners beyond Golden Dawn, and this will make the formation of a new government afterwards all the more difficult.

Europe’s reaction

Tsipras’ decision to call elections is bad news for the Greek economy and Greece’s relationship with its European partners. Leaders in countries such as Germany, Finland or Slovakia had a very hard time convincing their parliaments and their electorates that more assistance had to be given to Greece. Now Greece is entering a new period of uncertainty, which may extend well after the September election.

Greece’s creditors will still expect reforms and austerity measures to be implemented in the meantime, and will not accept political instability as an excuse. Voters and taxpayers in other Eurozone countries will have a hard time understanding why the Greek political system yet again failed to reach consensus and avert more uncertainty that affects the economic outlook of the whole eurozone.
For the Greek economy, the announcement of these elections is the final blow in a catastrophic 2015. With its banking system all but collapsed, the image of its tourism partially blemished by the migrant emergency in the Aegean, and its reputation among investors in tatters, Greece is now back to stagnation, if not outright recession.

Overnight the leader of Syriza’s left wing announced the creation of a new anti-austerity party with the name “Popular Unity.” As an indication of how deep the rifts in Syriza’s current parliamentary group are, 25 MPs announced their support for the new party, which is now the third biggest force in the Greek Parliament.

The performance of Popular Unity remains a major question, as this party has never run independently before. The number of MPs who support them currently corresponds to roughly 10% of the popular vote, but it should very difficult for them to actually score that much in an election.

Chances are they will clear the 3% threshold and enter parliament, after which they’ll hope they can slowly eat support away from Syriza, much as Tsipras did from the then dominant PASOK after 2010.

For more on this story and video go to: http://edition.cnn.com/2015/08/21/opinions/greece-election-chryssogelos/

IMAGE: Alexis Tsipras en.wikipedia.org