Donald Trump could use US influence on the International Monetary Fund (IMF) to scale back financial support for the beleagured Greek economy and intensify fears of a new ‘Grexit’ crisis for the eurozone, says Citywire AA-rated Liontrust manager Oliver Russ.
As one third of the ‘troika’ alongside the European Central Bank and the European Commission, the IMF has been a principal actor in the $86 billion bailout of Greece but this could change if the US, its biggest funder, decides the country’s situation is impossible, said Russ, manager of the Liontrust European Income fund (pictured below).
‘The risks are the IMF is not as on board as it was, and the US taking the view that [Greece] is an unsustainable situation and a waste of IMF resources,’ he said, adding that this issue could come to light under Trump, who could question whether it ‘will be worth’ keeping the eurozone together.
The US wields considerable influence in the IMF with around 17% of votes on its board of governors as its largest contributor, providing approximately $116 billion of its budget last year.
However, Trump’s dislike of ‘multilateral institutions’ such as the United Nations could see a change of attitude by the IMF towards Greece, which currently is engaged with another round of brinkmanship ahead of a July repayment deadline.
Complicating the situation is the fact that the EC and IMF have disagreed over just how much austerity is needed for Greece to reach a budget surplus.
This has led to increased resistance from Greek citizens and prime minister Alexis Tsipras, leader of a left-led coalition, who has said he will not implement further cuts beyond what has already been agreed. The Greek government has blamed divisions between the IMF and the EC for stalling Greece’s recovery.
Russ said it was ‘not in anyone’s interest’ for the IMF or the US to turn the screws on Greece as a default on its loans would have a catastrophic effect for the eurozone and could prompt another financial crisis.
‘Will they be that aggressive and provoke a crisis?,’ said Russ. ‘They will keep Greece going for a bit. The debt is supportable, it’s just unrepayable – so it’s OK as long as anyone does not ask for [the money] back.
‘It is not in anyone’s interest to provoke a crisis and they can [bailout the country] indefinitely and conjure up money as long as Greece does not default.’
Russ added that the ‘game’ of Greece moving towards bankruptcy, then ‘begging for money’ at the last minute while agreeing terms it does not want will continue but it was not the IMF’s preferred option.
‘In a normal situation the country would devalue and default – which would be preferable for the IMF – but as Greece is a member of the euro that is not easy and doing that could provoke another global financial crisis,’ he said.