The Washington-based International Monetary Fund had previously stated that it stood ready to bailout Greece, but its head Dominique Strauss-Kahn said throughout February and early March that he was sure that it wouldn't be necessary. The European Union's most influential leaders, including Angela Merkel of Germany and Nicolas Sarkozy of France, were steadfast in insisting that the IMF would not be necessary.
Merkel and Sarkozy had long indicated that the Greek debt crisis as an issue for the euro area. It was Sarkozy's argument that IMF involvement would diminish EU’s prestige and shatter the credibility of monetary union. Sarkozy in particular had argued that recourse to the IMF would be equal to acknowledging Europe’s incapability in handling its own problems.
Everything seemed to change last night when Angela Merkel's finance chief told the Financial Times that Germany would support IMF intervention if Greece does not meet its refinancing obligations over the next two months. Apparently, Merkel is now persuaded that the IMF which might be able to lend to Greece as low as 3.25% has a lower cost of funds than the EU and can be more influential in bringing Greece to fiscal austerity.
This puts Nicolas Sarkozy in a particularly difficult situation. Not only has Merkel shifted global attention to Dominique Strauss-Kahn, but Strauss-Kahn has made very clear that he intends to run for President of France later this year. He is already up in the polls by 4%.
Inside track: France may be insignificant today, but the French Presidential election is about to play out on a global stage.
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