Shuffle - Desmond Lachman
Resident Fellow Desmond Lachman

Sir, Your editorial "Next act in Athens" (April 10), recommending that Greece must immediately secure an International Monetary Fund programme and not wait for Germany's elusive support, overlooks a fundamental point. The very large size that a Greek bail-out package would have to be if it were to be credible in the markets implies that the IMF cannot and will not bear this burden on its own. Rather, the IMF will require that a major part of this burden be shared by Greece's eurozone partners. This will necessarily involve a substantial contribution from Germany, the eurozone's largest economy.

Greece's IMF quota is only SDR820m, or the equivalent of around $1.2bn. Even if under its exceptional lending practices the IMF were to extend Greece an 18-month standby arrangement for 12 times Greece's quota, which is the largest amount of a country's quota that the IMF has committed to date, the IMF would be able to commit only about $15bn of its own resources to a Greek bail-out programme.

Sadly, Greece's very large public borrowing needs over the next 18 months dictate that a credible bail-out package would have to be at least between $40bn and $50bn. This means that the eurozone countries would have to commit at least $25bn to Greece in order to satisfy the IMF that the bail-out programme was fully funded.

The net upshot is that going to the IMF will not spare Greece having to get substantial German financial support. Given the German taxpayers' strong opposition to a Greek bail-out, this could prove to be a major challenge for Greece ahead of the scheduled May 9 Westphalia election.

Desmond Lachman is a resident fellow at AEI.