Greece is on the hook for a 7 billion debt repayment in July, but may not be prepared to meet the obligation. If Europe doesn’t agree to come to an alternative agreement, the IMF may step in and bail them out again. This, according to the New York Times, which writes:
As the International Monetary Fund approaches the seventh anniversary of the contentious Greek bailout, it is torn over whether to commit new loans to a nearly bankrupt Greece.
The fund has been criticized for overcommitting financial resources to the European debt crisis.
Yet the I. M. F. has an obligation to lend to countries that are in financial need as well as to safeguard global financial stability.
Ostensibly, the role of the IMF is to safeguard global financial stability and it therefore would rather continue to throw money into the black hole of Greece than let it default. What this amounts to economically is a grand case of wealthier governments propping up overly indebted poorer countries against any standard of financial prudence. And since no government acquires its wealth in the first place, the IMF acts as a mechanism of wealth transfer. As the New York Times observes:
For example, the 30 billion the fund lent to Greece in 2010 was 30 times more than the sum of Greece’s financial contribution to the fund as a member, which is called a quota. The loan is one of the largest in the history of the fund, which was formed in 1944.
This post was published at Ludwig von Mises Institute on April 24, 2017.
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