How much political capital is inside the IMF?

Let’s say that you and a casual friend meet for lunch two or three times a year, but otherwise have little contact.  One day you would say to the friend “let’s become Batman and Robin and fight violent crime together in Gotham City, trusting our lives to each other along the way.  We’ve built up trust through these lunches, and besides if you say no I will yank the lunches away to your detriment.”

Hardly anyone would think that is a workable arrangement.  I would say there was not enough social capital built up in those lunches to make the larger cooperative venture sustainable.  Repeatedly citing the social benefits of a Batman-Robin alliance would miss the point of this critique.

I also read people arguing the global trade agreements should be used to enforce carbon emissions policy.  Similarly, I believe there is simply not enough political and social capital built into those trade agreements.  They are limited and rickety as it stands, and could not sustain the force of initiating what the Chinese would consider to be an act of economic warfare.

Now, let’s consider Greek default.  As Wolfgang Münchau suggests (and I think many agree), Greece should default to the IMF but stay inside the eurozone, or alternatively the IMF can just let Greece off the hook.  The economics of that argument make sense.  But does the IMF have enough embedded political capital to let Greece off the hook, when they deny credit to much poorer countries?  Does the IMF have enough capital and credibility to relieve Greece of that debt, and then return to its previous policies of simply not accepting any defaults?  What about the poorer countries in the eurozone — poorer than Greece — who do not receive comparable breaks?  How is this all supposed to work?  Or is it simply asking too much of the IMF?

We are about to learn how much embedded political capital is in the IMF.  I say 70-30 this cannot work, it is too late to suddenly turn the IMF into what it ought to be, one problem of many being that the United States simply has not cared enough.  Developing…and we’ll know more soon…


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