Greek hints they could turn to the IMF are turning up the pressure on EU leaders

EU wary of Greece seeking IMF help

BERLIN — Who’s afraid of the IMF? Greece is betting that the major European Union powers just might be.

The heavily indebted Balkan country, facing German and French reluctance to pony up and help bail it out as a fellow euro user, has declared it may turn to the Washington-based international lending agency.

But an unprecedented IMF bailout of a eurozone member country would signal that the European currency union can’t handle its own troubles — and some are now calling for the creation of a European monetary fund instead.

Greek Prime Minister George Papandreou, who travels to Berlin on Friday to meet with Chancellor Angela Merkel before heading to Paris to meet President Nicolas Sarkozy Sunday, has warned that if the new austerity measures it adopted this week fail to impress his counterparts in the euro zone, Greece will turn to the IMF for help.

“From today the problem can’t be considered ‘Greek’. We are doing what we must and more,” Papandreou said. “So now, it is the time of Europe.”

If the EU and the markets don’t respond “as we would wish, because of speculative behavior, our last resort would be the International Monetary Fund.”

Greece is already receiving technical help and advice from the IMF, but has not appealed for a bailout.

The idea that Greece is considering appealing for help from the IMF is akin to drawing a line in the sand. It would also put the euro zone, and Germany as its largest economy, in the awkward position of defending the integrity of the 16-nation euro from criticism that it it cannot stand up to tough tests on its own.

Alexandros Tokhi, a political scientist and European Union expert at the Berlin Free University told AP if Greece were to go through with asking the IMF for help that would seriously weaken the Euro monetary systems credibility.

“One of the euro states would actually adress another financial institution outside the EU for assistance,” Tokhi said.

However, he thinks Greece’s main goal is to pressure the euro states to help Greece with promises of help that would improve Greece’s chances of raising money.

“Playing the ‘IMF card’ increases the pressure on the EU and on its member states,” Tokhi said.

Merkel is in a bind. On one hand she has the authority to lead a European-backed bailout but she does not want to risk a voter backlash at home ahead of key regional elections in May.

Merkel lauded Greece’s steps to instill more spending cuts, calling them an “important step” toward realizing its goal of cutting its budget deficit, but her spokesman has made it clear a visit from Papandreou on Friday will not be about giving aid.

“This is a very important signal to strengthen markets’ confidence again in Greece and so also in the euro,” she said.

But will it be enough? Greece is not closing the door to any possibility.

“I want to make it clear: We don’t want an IMF solution, we want a European solution, with our European partners,” Greek Finance Minister George Papaconstantinou told his country’s Mega television broadcaster.

“But we cannot close the door at a time when we have not yet safeguarded that the country will continue to borrow and continue to borrow at rates that are not outrageous.”

Daniel Gros, director of the Center for European Policy studies in Brussels, said the IMF wasn’t really an ultimate solution in any case. “Greece is in the euro area and they can always tell us ‘If we can’t pay our debts and you don’t help, then we have a big problem.”

“If the program doesn’t work Greece can always come back to Europe and say ‘Sorry, guys, it didn’t work out. Do you really want to let me go bust?’”

“The IMF appears to be able to save Europe for dealing with this hot potato, but in reality it doesn’t,” he said.

Additionally, President Nicolas Sarkozy could be unwilling to let IMF Chief Dominique Strauss-Kahn take credit for helping Greece. Sarkozy himself sent Strauss-Kahn to Washington, ridding himself of an erstwhile rival. But the plan may have backfired.

During the financial crisis Strauss-Kahn has been amassing helpful photographs of himself with world leaders which could help lend credibility if he was to run again against Sarkozy. Opinion polls say Strauss-Kahn is France’s favorite politician.

Simon Johnson, a professor at MIT and a former chief economist at the IMF, said he would be surprised if “back-channels” had not been opened between Papandreou and Strauss-Kahn as both are leading international socialists — Papandreou is president of the Socialist International.

Johnson said “nothing terrifies the Germans more” than the IMF getting involved into the economic policymaking of a member of the eurozone. The result: Greece may end up getting a better deal from the EU than without the IMF threat.

The IMF reiterated that it was ready to help Greece with technical expertise, but did not say if Greece had made any other requests.

“We stand ready to assist, we expect that Europe will be able to fix this problem,” said Caroline Atkinson, the head of the IMF’s external relations department.

She said there were no plans for Papandreou to meet with IMF officials when he visits Washington next week.

Meanwhile, European Central Bank President Jean-Claude Trichet said EU cajoling was getting the job done in putting Greece back on the right path.

“The peers have done their job, which is extremely important,” Trichet said, speaking about the ECB, the EU, individual governments and its officials in recent days. “This is the functioning of the European institution.”

“I do not trust it would be appropriate to have the introduction of the IMF as a supplier of help through standby or any kind of such help,” he said.

Trichet said that the IMF help had been important, but only with their expertise.

“The fact is, that the conditionality inside the euro area has to be decided, in our opinion, by the peers according to the stability and growth pact.”

AP Business Writer Pan Pylas reported from London and AP Business Writers George Frey in Frankfurt and Emma Vandore in Paris and Associated Press Writers Verena Schmitt-Roschmann in Berlin, Elena Becatoros in Athens and Harry Dunphy in Washington contributed to this report.