From the outset in the Greek bailout crisis, Merkel has wanted the IMF to be onside, along with the Eurozone group as well as the European Central Bank. The three institutions — known as the Troika — have been wrestling with the Greek crisis for years. Yet, at the heart of the crisis is the problem that the three institutions have differing agendas.
The Eurozone countries are desperate to maintain confidence in the currency. Some Eurozone countries like Ireland, Spain and Portugal have come through tough austerity measures and survived and see no reason why Greece should be allowed off the hook.
— IMF (@IMFNews) July 14, 2015
The European Central Bank wants to maintain stability in the euro and has consistently maintained that membership of the euro is irreversible.
Merkel insisted on getting the IMF on board to have her political back in the face of opposition at home to a further German bailout. Her own finance minister Wolfgang Schäuble has strongly argued that it would make more sense for Athens to leave the Eurozone temporarily rather than take another bailout.
— Jill Kerby (@JillKerby) July 13, 2015
His views are popular among Germans as a whole, who have long memories of the most magnanimous bailout in the country's history when Berlin agreed to match the Ostmark with the Westmark after German reunification — on a Mark for Mark basis, which cost the west dearly, but which was the foundation for unity. There is little sentiment for another Greek bailout.
Highly Unsustainable Greek Bailout Package
However, the IMF did not take the lead on the negotiations — it was only a partner within the Troika — and its hand has been swayed by Euro-centering political decisions. Domenico Lombardi, a former executive board member of the IMF and World Bank, says the fund's bailout program that began in 2010 "reflected a political decision that disregarded any underlying economic logic."
The publication Wednesday of the leaked IMF report which says Greece's public debt has become "highly unsustainable" is a massive blow to Merkel, desperate not to preside over a Grexit. The IMF says Greek debt would peak at close to 200 percent of GDP in the next two years, which is impossible to service. The report amounts to a trashing of the agreement made Monday, which the Greek parliament is voting on Wednesday.
For Merkel, the worst is yet to come. The German parliament is due to meet in a special session on Friday to debate whether to authorize the government to open new loan negotiations. With the rug pulled from under her by the IMF, Merkel is facing a knife-edge vote. Irrespective of which way Greece votes Wednesday evening, Merkel's hopes of avoiding a Grexit could yet be left in tatters in Berlin this Friday.