Flurry of contacts leads to IMF converging with the ECB

The International Monetary Fund has retreated from its demand for an asset quality review (AQR) of Greek banks, according to statements made on Thursday in London by the head of the IMF’s European Department, Poul Thomsen. The Washington-based Fund insists, however, that a medium-term strategy is needed to tackle the issue of bad loans.

“On the subject of the Greek banking system we see no financial stability concerns at all in Greece,” said Thomsen. He added that the European Central Bank’s proposal to bring forward the already planned stress tests and undertake targeted asset reviews, without having to go through a full AQR, was constructive.

The compromise reached between the Fund with the ECB was not easy. It followed plenty of behind-the-scenes contacts, led by ECB President Mario Draghi, who put his weight behind averting the IMF call for an AQR from becoming a self-fulfilling prophecy at the expense of Greek lenders, whose stocks suffered a cumulative drop of 35 percent.

Sources say Prime Minister Alexis Tsipras spoke with IMF Managing Director Christine Lagarde on Tuesday. On the same day, central banker Yannis Stournaras also spoke with Lagarde after he mobilized the entire ECB system, which shared his concerns. This led to Draghi taking it upon himself to appease the IMF, while Stournaras contacted IMF Deputy Managing Director David Lipton too.

Finance Minister Euclid Tsakalotos also rushed to contact top ECB officials and his French counterpart, Bruno Le Maire, who in turn spoke with Lagarde, his compatriot.

Therefore Thomsen told a Financial Times event on Thursday that the IMF would be happy with the ECB’s proposal “that achieves the same broad targets, and we are now discussing the precise methodology without our colleagues at the ECB.” IMF Deputy Spokesman William Murray added that the Fund remains committed to the Greek program and its aim is for the Greek economy to return to a sustainable path.