–EU Mechanism Resolves Long-Standing Uncertainty on Crisis-Response
–Reflects ‘Very Important Lessons Learned’ in Greek Crisis
–Gratifying to See Positive Market Reaction

By Heather Scott

WASHINGTON (MNI) – The plan announced late early Monday morning in
Europe addresses the “architectural ambiguity” of the monetary union and
resolves long-standing uncertainty over crisis response and fiscal
policy cooperation, a senior International Monetary Fund official said.

IMF First Deputy Managing Director John Lipsky said the plan also
clarifies the relationship of the IMF with the eurozone in the event of
a crisis in one of its members, though he clarified that the fund has
not set aside a specific level of resources since all aid is provide to
individual members on a case-by-case basis.

Although the long-term challenges, will require “substantial” fiscal
adjustment and a sustained effort in coming years by Greece and all
advanced economies, “it is gratifying to see the positive market
reaction” following the weekend announcements.

The IMF Sunday formally approved a three-year, E30-billion standby
loan for Greece, and then after 11 hours of intense negotiations,
European Union finance ministers announced a Eurozone support package
worth more than E720 billion — E60 billion put up by the European
Commission, E440 billion in bilateral loans from the Eurozone countries
and the potential for another E220 billion from the IMF.

No country has yet requested support from this money, the
policymakers said, and if they did, it would be lent with very strict
conditions consistent with IMF terms for its loans.

In tandem, the European Central Bank said it would buy government
and private debt on the dysfunctional European markets, restart the
long-term refinancing operations it had been phasing out and reinstate
dollar-denominated foreign exchange swap line with other major central
banks.

Lipsky told a small group of reporters that the E220 billion in
potential IMF support is a “hypothetical” figure, not a fixed total
earmarked for eurozone countries.

Any aid to an IMF member would be at the request of the member and
the instruments used would be those already available and determined by
the circumstances, he said.

He repeated that the IMF has “adequate funds available for any
and all operations that we foresee” and it would be inconceivable that
fund members would not provide the resources needed.

The official stressed the importance of the EU announcements and
the willingness of EU and Greek authorities “to take very aggressive
actions.”

“Only weeks ago, there was a serious question about what the
role of the IMF would be in the case of euro area countries,” he said,
but European officials have clarified that.

“I would say this is a potentially very important and significant
measure of addressing the architectural ambiguity of monetary union …
a very important and significant step in strengthening that
architecture,” he said.

The monetary union had “no mechanism for fiscal coordination or
potentially financial support,” Lipsky said.

The recent crisis “has thrown these long-standing questions into
very high relief,” and markets have reacted positively to the creation
of a template for EU, eurozone and IMF response to a crisis, and to the
fact eurozone financial support “will be dramatically more agile, more
effective and more transparent.”

Lipsky also stressed once again that the IMF does not have any loan
negotiations underway with any eurozone member. However, there is a
mission in Spain about to begin the previously-scheduled, annual
economic review known as the Article IV consultation, generally
conducted at the same time each year.

Likewise, the IMF is about to begin the long-scheduled Article IV
review of the euro area, which also is conducted at this time each year.

** Market News International Washington Bureau: 202-371-2121 **

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