The IMF's role/roll

I am extremely relieved that there is now finally, serious talk of allowing the IMF come into the Eurozone (EZ). Up until now, our policy efforts have been to do everything possible to avert the IMF coming into the EZ. We have even gone so far as to develop a mini-IMF within Europe (EFSF/ESM) to perform the necessary tasks without giving over control to this global institution. (Note: despite their involvement in the bailouts of Greece/Portugal/Ireland, the IMF is not in control of these programs, it is merely providing technical support and limited funding).

However, I have always thought this was a mistake. I have written to countless heads of State, Commissioners etc. expressing my disbelief that they have gone to such lengths to prevent the IMF coming in and performing the necessary tasks. They have built up mighty institutions, destroyed countless billions of wealth and worst of all wasted precious time for reform in their efforts to stave off the IMF's advances.

I can remember clearly the first person to rule out IMF involvement -Jean Claude Trichet; he said that having the IMF intervene in a Eurozone country would be a humiliation. I did not think then and I do not think now that that was appropriate language for a central bank governor to use -emotive, unengaged, and truculent. I regard it as the key mistake made at a European level. I have since written to countless people trying to highlight the absurdity and vainglory of what we are trying to do. Only Olli Rehn took the trouble to respond to me, simply saying that the IMF had insufficient funds to rescue Greece (which seems absurd, when you think about the resources we have given to the EFSF since).

The real reason for all of this dissembling, was that European leaders know, that the first thing the IMF will do is tell the countries in severe debt that they must first write down a great deal of it. This will cause losses to private investors throughout the region, many of them institutional investors such as pension funds. I fully understand the reluctance to expose these institutions to losses -however, after 3 years of this farcical dancing around the IMF, can anyone seriously say that going to the IMF would be worse? Furthermore, by now, the truly vulnerable institutions such as pension funds, deposit banks etc. have sold their stakes in these bonds and the current bondholders for the PIGS are mostly high-risk investors -such as hedge funds. Defaulting on these will not cause the cataclysm our leaders fear.

I am delighted to hear that finally, people are talking of the IMF taking control of this process, instead of this Frankfurt group which has grown up in recent months. The IMF has the expertise, the credibility (and with ECB support, the firepower) to fix these multiple crises. It will look at solving the problem and will not have to look over its shoulder at national bondholer interests or coalition partners. I hope this suggestion gathers momentum.

My father used to tell me that if you get the economics right the politics will look after itself. I have come over the years to invert this wisdom -once you get the politics right, the economics fall into line pretty quickly. We need to get rid of this dysfunctional system of politicians from other jurisdictions deciding what is economically best for the troubled countries. The IMF is no more democratic or accountable than the Frankfurt group, but at least their agenda is not set by bondholders or domestic elections. If they come in, then we can really start to work at putting all this horror behind us.