IMF Tries To Put Out Fire From Bombshell Greece Leak, But Doesn’t Apologize

Speculation that the IMF would pressure Greece to negotiate is “nonsense,” says a letter rife with thinly veiled criticism.
 04/03/2016 05:33 pm ET | Updated 14 hours ago
The Huffington Post

Daniel Marans
Reporter, Huffington Post

The International Monetary Fund’s managing director told Greek prime minister Alexis Tsipras on Sunday that the IMF remains committed to good faith negotiations, trying to assuage concerns raised by a Saturday leak.

Christine Lagarde dismissed the possibility the IMF would use underhanded tactics to pressure Greece in the letter, which was also posted on the IMF’s website.

The Huffington Post first reported on Saturday that Tsipras had asked Lagarde whether Greece could “trust” the IMF in light of leaked remarks by IMF officials suggesting that a crisis-inducing “event” was necessary to get Greece to comply with IMF austerity requests.

“Of course, any speculation that IMF staff would consider using a credit event as a negotiating tactic is simply nonsense,” Lagarde wrote Sunday.



Lagarde acknowledged that the leak had sown suspicion, but said that the IMF was still capable of conducting its mission in Greece.

“I agree with you that successful negotiations are built on mutual trust, and this weekend’s incident has made me concerned as to whether we can indeed achieve progress in a climate of extreme sensitivity to statements of either side,” she wrote. “On reflection, however, I have decided to allow our team to return to Athens to continue the discussions.”

Lagarde implied that the leak had been the result of eavesdropping and suggested the onus was on the Greek government to prevent such an incident in the future.

“The team consists of experienced staff who have my full confidence and personal backing,” she wrote. “For them to be able to do their work, as you have invited us, it is critical that your authorities ensure an environment that respects the privacy of their internal discussions and take all necessary steps to guarantee their personal safety.”

She also implied that the Greek government had inappropriately leaked Tsipras’ letter to Lagarde Saturday.

“Finally, the IMF conducts its negotiations in good faith, not by way of threats, and we do not communicate through leaks,” Lagarde concluded. “To further enhance the transparency of our dialogue, I have therefore decided to release the text of this letter on our website at www.imf.org.”

Lagarde does not address the authenticity of the leaked transcript, purportedly from a March 19 teleconference between IMF Europe director Poul Thomsen and IMF head of Greece mission Delia Velculescu, which Wikileaks published Saturday. A statement from a spokesman immediately after the leak neither confirmed nor denied that it was genuine.

In the transcript, Thomsen and Velculescu describe their belief that a credit “event” is the only thing that will prompt the necessary action by both Greece and Germany, the country’s largest sovereign creditor, but do not reveal any explicit plans to generate such an event. They state that without such an event, Greece would lack an incentive to follow through on meeting the IMF’s budget target, while Germany would remain unwilling to restructure Greece’s debts.

Greece likely views the leaked conversation as a tool to advance its position in negotiations. But Greece also has good reasons to be wary of negotiating partners, given its recent experience. The country agreed to previously unimaginable tax and spending concessions last July, in exchange for the current 86-billion-euro bailout package, after the European Central Bank withheld emergency assistance to Greek banks. The ECB’s actions pushed the Greek economy to the brink of collapse.

The Greek government has also argued that Thomsen in particular has made unreasonable demands, refusing Greek substitutes for some pension cuts that have an equivalent fiscal impact, at least on paper.

Peter Doyle, an economist and former IMF senior manager who worked with Thomsen for many years, believes the transcript is real based on what internal IMF discussions typically sounded like while he worked there.

But rather than a conspiracy, Doyle characterized Thomsen and Velculescu’s conversation as a “whinge session.”

“What the two of them are doing is moaning to one another about their impotence,” he said.

Even if Thomsen and Velculescu wanted to precipitate a credit event, they lack the power to do so, Doyle said, since “the main driver in the whole process [is] Mrs. Merkel.”

Like Lagarde, Doyle surmised that the leak was likely the result of governmental eavesdropping, though he would not speculate about which government. Iva Petrova, another Athens-based IMF official, was listed on the transcript of the conversation but barely spoke, implying she may have joined Velculescu via speakerphone in a building in Athens. Such rooms are often bugged by intelligence agencies, Doyle said, adding that he “worked on [IMF] missions where I knew the hotel was bugged.”

What Doyle found disconcerting about the transcript, he said, is the near-total agreement between Velculescu, who runs the IMF’s Greek lending operation, and her boss.

“There is no sign here of debate, of speaking truth to power,” he said. “There is no sign here that Poul Thomsen, who has a dreadful record on his conduct toward Greece, is being challenged on what he is doing.”