IMF vs ECB: Who’s More Austere?

I’m going to agree with Henry Farrell against James Vreeland and say that whatever problems you may have with the IMF’s “conditionality” vis-à-vis an Ireland bailout, their prescriptions are going to be a good deal less austere than what the European Central Bank would prescribe. IMF professional staffers are quite aware of the theory that they pushed austerity too hard in the 1990s and believe they’ve turned over a new leaf*; the conventional wisdom in Frankfurt by contrast seems to be that the problem with the Stability and Growth Pact is that it wasn’t severe enough.** There’s also just the matter of Germans. As Farrell says:

Jim is right to point to the differences between the Strauss-Kahn/Blanchard crowd and the IMF’s Executive Board. And it may be that the dynamics he points to are going to come into play during the monitoring process. But if the IMF is going up mano a mano against the ECB in a fight to see who can out-austere the other, I’d put my money on the ECB. The IMF may be indirectly responsible to Germany, the United Kingdom and France, but the US — which has been quietly expressing its displeasure with the EU’s hairshirts-for-everyone approach to fiscal retrenchment will have some say too, even if it is going to be reluctant to wade too obviously into intra-European fights. And the ECB, whatever the nominal voting system might suggest, is in practice beholden only to Germany, Germany and Germany.

Specifically, though the IMF has a very complicated governance structure the biggest says go to the United States and Japan, neither of which are super-invested in the idea of budget austerity. Germany (and the politically similar Belgian-, Dutch-, and Danish-led voting blocs) still has a lot of influence at the IMF but it’s less than they have at the ECB. Managing Director Dominique Strauss-Kahn (putting the international financial system under the authority of a French Jewish Socialist is like a hilarious joke by the way) also gets a vote on the board.

But this all seems irrelevant in many ways. Ireland doesn’t have enough output to pay off the bad debts of Irish banks and no conceivable budget will change that. Either they need to default, or else there has to be a real bailout where non-Irish actually pay off the debts instead of just loaning money to the Irish government. You can’t make the sums add up.


* Yes, I know, everyone who used to hate the IMF still does. But pay attention, they really have changed. ** This is an insane theory, by the way, several of today’s most-troubled European states had perfectly sound pre-crisis budget policies.