REVEALED: Why the IMF has had to give Greece a bridging loan until July

All smiles on the Western Front…but they’ve fallen out. And the French are falling behind in this alliance.

US Fed Treasury chiefs may have driven the IMF’s holding-folding loan to Athens

Early last year, I stumbled upon an amusing anecdote about President Sarkozy. Returning to an Elysee meeting after taking a call from Angela Merkel, the Frenchman is said to have treated those present to one of his infamously indiscreet outbursts.

“That f**king cow,” he said, “is reverting to Brunhilde type”.

Sarko isn’t renowned for his knowledge of the arts, but the story rings true for two reasons. First, because of who gave me the account. And second, because the storyteller was neither French nor German but rather, a worried American.

The French and German spin doctors work overtime trying to persuade their publics that the German Chancellor and the French President get on terribly well, but it’s a fiction.

“There is always a show put on,” a well-placed French source told The Slog, “Always, always. They meet, there are smiles, there is apparent warmth. But they don’t hit it off at all. She is dogged and he has histrionics. It’s a miracle anything gets done”.

But my American acquaintance now admits that nothing is getting done. That, in effect, they are nowhere near being even able to talk about the Greek bailout any more.

“They’re poles apart,” she told me, “As in, they hold diametrically opposed views on how to rescue Greece.”

The German press is playing the disagreement as a purely selfish one by France, whose banks are massively exposed to bad Greek debt. For this reason, they say, Sarkozy is opposed to wholesale ‘investor haircuts’. But my information is that several German banks might also find themselves in big trouble for the same reason.

The situation seems, as always, to be rather more subtle. Sarkozy’s team is in favour of ‘disguised’ rescheduling in order to give the Greeks time to get their economic act together. Merkel, by contrast, has several problems with this. First, she thinks the ratings agencies would see through that as a de facto default. Second, she thinks that would encourage the other peripherals to pull the same stunt. Third, she thinks her voters (who are already deserting her in droves) would see it as ‘letting the Greeks off’.

Finally, the German leader believes offering the carrot will only put off the day when the Greeks have to face facts. The stick required by then, she argues, would be a chainsaw. And she has no desire to go down in history as Chainsaw Geli. Sarkozy’s retort is that without the support of the Greek people and key Athenian businessmen, draconian measures now will mean resentment and, quite soon, a bloodyminded unwillingness to cooperate with any lender. And yes – it is true – Societe General especially would go under if the Greeks simply give up. This would, in turn, probably sink Sarko’s re-election chances once and for all.

Subtle considerations or not, the bottom line is big, thick and black: this impasse is about the will of two politicians to survive in the job. And it is being exacerbated by the fact they can barely stand to be with each for long periods.

Der Spiegel picks this up today, noting that the French Ambassador to Berlin Maurice Gourdault-Montagne has been painting a gloomy picture of the current relationship to selected senior German journalists. Gourdault-Montagne told them that, in addition, France is concerned that Berlin pays too little attention to its ties with Paris. In particular, the country is unhappy about the relative paucity of one-on-one meetings between the French and German leaders.

The duo are meeting as I write – in Berlin. But I doubt if many people realise that this is the first 1-to-1 meeting between them in seven months. The EU is falling apart, and the two most senior leaders in that Union have not met at all this year to talk about it in private.

Half an hour ago, there was a joint press conference hosted by the duo. But fascinatingly, Merkel refers not to a compromise with the French position – but rather, a commitment to a minor compromise with Jean-Claude Trichet’s European Central Bank: the German leader told the media that she’d work with the European Central Bank to resolve the crisis, suggesting she’ll temper a demand that bondholders shoulder a substantial share of Greek aid.

Her speech contained these significant words: (My Italics)

““We would like to have a participation of private creditors on a voluntary basis. This should be worked out jointly with the ECB. There shouldn’t be any dispute with the ECB on this.”

Of the French, there was no mention at all.

Interestingly, the Spiegel piece quoted earlier is entitled ‘Eroding Franco-German bonds’. This too is part of the mix: the French feel they are becoming the junior partner which – differing levels of economic success dictate – they are. Allegedly, the last time Geli and Nico met, in his typically impulsive manner, a frustrated Sarkozy said this outright. The German Chancellor stared back at him, her face impassive. It didn’t go down well in the Elysee Palace later.

My American contact is worried for a simple reason discussed here recently: the US is pinning its hopes on having ‘their’ people in power in France and Germany when the solids/fan interaction takes place (as it must) in the EU. The last thing that Obama and Geithner need is the two allies falling out….but equal last comes a Social Democrat victory in Germany, and a Socialist President winning in France.

This is going to be a difficult circle to square for the White House. I’m told (although I can’t in all honesty assert its certainty) that US Treasury heavies were behind the IMF’s decision to leap in and offer the Greeks a bridging loan. The idea was first up to stop a market panic; but equally important – and an important motivator to action – it gives Frau Merkel and Monsieur Sarkozy time to patch up their differences.

We shall see.


Why Strauss-Kahn had to go    Big Twister heading straight for Brussels    Britain committed to help Greek Bailout 2

Crash 2 is here    Hyper-stagflation is the new global pandemic