Transcript of Press Briefing by International Monetary Fund First Deputy Managing Director John Lipsky on the Euro Countries Stabilization Measures, Washington, D.C.

May 10, 2010

Washington, D.C.
Monday, May 10, 2010

MR. MURRAY: Hello to everybody listening in. I’m William Murray, chief of Media Relations. Just quick ground rules and then we’ll go right into this briefing. It’s on the record. For the journalists online, we’re going to embargo this conference call content until one hour after we conclude, so one hour after we conclude. I’ll set the precise time when we wrap up.

Right now we have John Lipsky, First Deputy Managing Director of the IMF, here. I’m going to turn the table over to John.

MR. LIPSKY: Thank you. Just a few brief introductory words and then I will get on to answer your questions, or to discuss what you want to.

Obviously, we’re coming off of the very significant weekend of two key developments, not just for the Fund, but for international governance and financial markets as well. The first was the formal approval by our Executive Board of the Stand-By Arrangement with Greece, which was then followed by the approval last night, I guess it was, by the ECOFIN of the European support package as part of the entire Greece support operation. And this represented, I think, an important benchmark of cooperation for the euro zone and the IMF in support of a set of very determined and ambitious policy moves by the Greek authorities to deal in a decisive way with the significant challenges -- substantial challenges that they’ve faced in the short run, and that promises to provide sustained support of a very thorough economic reform program of the Greek authorities.

Then, of course, that was followed by the agreement by the Euro Group ministers with the cooperation of some of the non-euro EU members to put together a proposal for the European Stabilization Mechanism, a strengthening of the fiscal policy surveillance processes within the Euro Group, that would incorporate the cooperation of the IMF and that effectively would indicate -- or that effectively indicates that in the future, the template for the relationship between the euro zone countries and the IMF and cases of need for support would follow the template in broad terms, established in the case of Greece. In addition, as you all know, the euro zone actions supported by the ECOFIN and in collaboration with the Fund were also supported by the European Central Bank and its announcement of its several decisions to intervene in bond markets, to provide -- or to reactivate liquidity support operations, and in cooperation with the Federal Reserve and other central banks to reactivate the dollar swap facilities that had been created in the wake of the 2008 financial strains.

I don’t think I need to go further other than to say that we had a discussion at the [IMF Executive] Board today to describe the developments and to discuss the potential implications for the Fund. So, why don’t I stop and let you ask questions.

QUESTION: Can you talk a little bit about surveillance and the role of the IMF? I mean, it’s sort of been pretty clear that the euro zone countries have done an awful job at doing surveillance on their members. So, is -- if you can talk about how you imagine the IMF acting from now on with regard to euro zone countries? Will you be the sort of sheriff in there?

MR. LIPSKY: Well, the -- as you know, all of the euro zone countries are members of the IMF and as such we conduct our annual regular Article IV Consultations as the bedrock of our bilateral surveillance with euro zone countries. You may be aware we also conduct an annual Article IV Consultation with the euro area and, in fact, that, by chance, is about to start. Long scheduled, it occurs regularly at this time of the year and, in fact, is always a complicated schedule to put together, so it’s been long arranged.

These basic elements of Fund surveillance of course will continue and will remain the basis for Fund relations with its member countries and with the euro area. Of course the creation of a stabilization mechanism and the clear delineation in the ECOFIN’s communication, I guess they called it, of the role of the Fund, points to a specific relationship in regard to potential operations or use of the mechanism.

And perhaps it’s worth just reading to you, again, from the conclusions, as they call it, of the ECOFIN Council. In discussing the stabilization mechanism they state, “Its activation is subject to strong conditionality in the context of a joint EU-IMF support and will be on terms and conditions similar to the IMF.” In other words that use of the mechanism will be associated with an IMF program, in essence, on the -- as I said earlier, following in broad terms the Greek template.

So that clarifies in, I think, a very definitive way, a question that had been, frankly, as we all know, one of discussion and some disagreement of opinion within the euro area countries, has now been clearly resolved, that the relationship of the Fund in these cases, and the relationship of the Fund in the use of the new mechanism is very clear.

The ECOFIN statement also looks forward to a strengthening of the -- I’ll use your term and our term -- the surveillance, the fiscal surveillance, activities within the euro area. And it seems to me that the recent experience and the desire to improve the efficacy of that process and the very effective partnership that we have forged with the European Commission, the ECB, that has been strengthened in the context of the strains of recent months, will make that both the European or the euro zone’s fiscal surveillance activity and our own more effective and more productive and more collaborative.

QUESTION: I’m not euro zone or represent the euro zone countries, so my question is about how can the debt crisis influence countries such as Russia and her neighbors? And what is the template for helping them if the need arises? What’s the worst case scenario that you see there?

MR. LIPSKY: Well, as I think we made clear hopefully in our press statement -- press release last night, as the Managing Director stated, that even in the cases of the IMF collaboration with the stabilization mechanism, as the Managing Director stated, our contribution will be on a country-by-country basis through the whole range of instruments we already have at our disposal. In other words, whereas the euro zone has created the new European Stabilization Mechanism for this purpose, on our side we already have present the support mechanisms necessary to provide our part of the operation for countries like -- members like Russia and like all of them, all our members have access to these facilities as well.

So, what is special about the euro zone, of course, is that they’re eligible for the additional support of the European stabilization mechanism.

QUESTION: How can they be affected? How badly can they be affected?

MR. LIPSKY: How badly can Russia be affected?


MR. LIPSKY: If I understood the question the way you put it, does Russia have an interest in the success and stabilization in the euro area? I think the answer is quite straightforward. I’m not sure that’s your question.

QUESTION: No, that was not it. The question is, how can the debt crisis affect Russia and her neighbors, the countries in our part of the world? And again, what is the worst that can happen to them?

MR. LIPSKY: Well, I’ll let others -- no, there are plenty of folks around these days who are happy to supply you with worst-case scenario, detailed descriptions of everything that could possibly go wrong. I would say what we have before us is, in fact, an example of what could -- hopefully, what could go right. I think the risks that a debt crisis or sovereign debt crisis or just in general, economic and financial instability, would have on Russia is really quite straightforward and easy to understand. So, what we have here is the response in a very decisive and overwhelming way to challenges. And my guess is the -- what I would suggest is, one of the messages here was faced with -- once again, faced with very large challenges, in a way unprecedented challenges for the euro area, that the countries of the euro area in collaboration with their European partners and, more broadly, internationally were able to face this, come to an agreement on unprecedented actions that resolve some -- that at least tentatively and potentially resolved some longstanding uncertainties and ambiguities about the -- about how, exactly, the euro group would respond in the case of a crisis.

So, the willingness to take action, the willingness to form these new structures, the willingness to define in a clear way the relationship to the IMF, the participation of the ECB and other central banks, all these, I think, are very, very significant actions that rather than pointing to what could go wrong for a country like Russia, happily suggest some things that could go right in a way that probably would not have been clearly anticipated even days or weeks before.

QUESTION: Can I go back and follow up on an earlier question about surveillance?

MR. LIPSKY: You can.

QUESTION: You know, I understand you’re saying there’s going to be better cooperation and better surveillance, which we’ve heard before, actually, but your statement yesterday –

MR. LIPSKY: Not from me.

QUESTION: -- mentioned that there -- that it’s not that there was an absence of surveillance in the Greek situation, but the data was faulty. And you said -- and the statement said that’s been corrected or it will be corrected going forward so the surveillance can be more reliable. But where in the IMF processes is there any review of how the data’s arrived at? The same issue comes up in Argentina with their CPI data.

MR. LIPSKY: Well, we have, as you will have seen -- has the staff report been released yet?

MR. MURRAY: No, not yet.

MR. LIPSKY: But it will be -- it will be? When will it be out?

MR. MURRAY: Probably sometime today. Today or tomorrow.

MR. LIPSKY: But you will have already seen that there was what they call an Article VIII process, Article VIII, Section 5 process –

MR. MURRAY: (inaudible) look at the Greece release.

MR. LIPSKY: I don’t have the Greek -- yeah, I don’t have it in front of me. But there it explains there was a formal process with this regard, in other words, that the Greek authorities, like all IMF members, have the obligation to provide reliable data. And this Article 8, Section 5, is to deal with those cases in which we find that that has not been the case. But we have -- as you will see in that statement and you’ll find clearly in the staff report, that there was an extensive process of consultation with the Greek authorities. After all, it was these very same Greek authorities who brought to our attention and to the world’s attention the problems of the underlying data.

There had been a technical assistance mission of the -- from our statistics department, I think from Eurostat as well, that have worked very clearly with them to establish the procedures that would point to good data, if that’s a response to your question.

QUESTION: Well, right, but that’s happened after the crisis was already underway. I mean, it’s laudable that the current government is the one that pointed it out, but still, I mean, you could have bad, I don’t know, UK data in there and you don’t -- if there’s no review along with the regular processes, then there’s no way that you’ll know unless a crisis explodes.

MR. LIPSKY: Well, to be honest, I should probably step back because I’m not a great expert in the issue of statistics. Nonetheless, I think there’s quite a great degree of transparency and oversight in most countries about the processes by which their data is provided. I’m sure you are very aware of the Fund’s SDDS process, whose acronym –

MR. MURRAY: Special Data Dissemination Standard.

MR. LIPSKY: That defines very clearly the requirements for data adequacy and the Fund’s Statistics Department has provided technical assistance and oversight in this regard.

Now, that being said, it’s true, we are not auditors, we are not accountants. It is not our -- we do not have the staff or the responsibility of overseeing in great detail except in those cases like the one in Greece where there has, either by the -- in this case, by the voluntary -- volunteering of information by the Greek authorities that we basically came in to help clarify the situation because it was clearly in their interest that this be clarified, or in cases -- other cases where there are reasons to suspect that there is a problem with the data, that we work on this. To be honest, I think this was a problem in broad terms that was given high relief in the wake of the ’97, ’98 crises and that the SDDS was created in the wake of that exactly in the interest of improving data quality and transparency.


MR. LIPSKY: Yeah, but it’s -- I would say that the strides that have been made, in general, have been very good, actually. More and more the data from our member countries is both reliable, it’s available in a timely way, and available online.

So, I don’t know if you want to pursue that any further or if I did respond to you.

MR. MURRAY: I’ll get back -- let’s try one question from abroad? Can we try that? See if anybody online wants to pose a question?

QUESTION: Thanks for your time, Dr. Lipsky. I’m sorry I joined a little bit late, so I’m sorry if you already addressed this, but I wanted to ask if you could characterize what was the United State’s role in the events over the weekend? Was it purely supporting or did it play an important role and help bring this sort of comprehensive package together?

MR. LIPSKY: Well, probably better to go talk to the Treasury themselves about their role, but as you can see from the G-7 statement that the -- and the G-20 statement, but particularly the G-7 statement, that the U.S. and the other G-7 partners of the euro area countries were very encouraging and supportive of these measures. Again, I don’t think I need to go further than that and if you wanted details it’s probably best to speak to them.

QUESTION: Well, I guess -- I’m sorry, just if I could just follow up quickly. In terms of the U.S. being, you know, a significant shareholder in the IMF, what’s been the -- you know, within the Fund, what’s been the American take on the situation?

MR. LIPSKY: Well, as I said, broadly the U.S. authorities have been very supportive and encouraging, first at the European authorities deal and in a decisive and forthright way with the emerging challenges, that they have also been supportive of the IMF taking a role specifically in the case of Greece and supportive of the policy programs and financial support that were proposed for Greece, and I’m sure will be supportive of this arrangement going forward.

After all, as I say, I wouldn’t underestimate -- perhaps you missed the -- my reading of the conclusions from the -- the document called “Conclusions from the ECOFIN Council” that I considered, strictly from the point of view of the IMF, particularly important, and that is where the councils have stated that in the activation of this stabilization mechanism is subject to strong conditionality in the context of a joint EU-IMF support and will be on terms and conditions similar to the IMF. Once again, to underscore, this gives the IMF a very crucial and important role in the process of resolving problems within -- of the kind that we’ve seen in Greece in the future. And in that sense, it gives, if it will, a role to the international community in resolving these problems. And in this sense, could well provide a kind of broad template -- again, not detailed, but broad template -- for the relationship of the Fund with other regional arrangements in the future.

QUESTION: Thank you.

QUESTION: So one question is basically, do you -- the Managing Director’s statement mentioned the entire range of instruments available to the where along the spectrum of instruments from the FCL to a precautionary SBA to an SBA. What is the Fund likely to use? Because, you know, from our perspective, I can’t think of a time when we’ve seen such a huge commitment of Fund resources without any sense of, you know, what the program is. Because even in Greece there was -- you know, there was an understanding that the Greeks had asked for a standby arrangement and then that was being worked out. So any clarity you could provide on (inaudible) more on the nature of what’s being (inaudible).

MR. LIPSKY: Yeah, let me ask you, when you say “a program,” what are you referring to?

QUESTION: Well, I really -- I’m thinking of -- I mean, in the MD statement, of course, there is -- you know, there’s no dollar figure and there’s no sum in there. But the -- what the -- the EU statement that came out had a number of sort of $250 billion -- or 250 billion euros from the IMF. And, you know, just trying to get a sense of -- on, you know, what would be the basis for the (inaudible), what kind of, you know -- what kind of instrument would you use? Because the MD (inaudible).

MR. LIPSKY: We were trying to be -- I think the Managing Director’s statement was trying to be clear that, as I said earlier, whereas for the European Union and the euro zone member countries and those collaborating with the formation of the European Stabilization Mechanism, this was a new creation, a new instrument. Whereas on the side of the Fund, we operate, as it says, on a country-by-country basis and we have available to our members, euro zone members, the whole range of instruments already at our disposal, as the statement says.

So the indication is that the IMF already has instruments appropriate for these purposes, as in Greece. We do not and will not be creating new instruments to accompany the European Stabilization Mechanism. And that means that although we talked about and the statement -- the Managing Director’s statement continues: We expect our financial assistance to be broadly in the proportion of our recent European arrangements. It’s -- so there -- as opposed to the creation of the mechanism that has a very specific amount that will be created through the special purpose vehicle, that our participation would be determined on a case-by-case basis and at the request of our member countries.


MR. LIPSKY: And, therefore, giving the total is, in a way, illustrative of if the European mechanism were fully utilized in the context alongside -- by definition, would be alongside IMF programs, this would give an idea of how much, in theory, could be -- how much the IMF participation could amount to. But you see, let me emphasize again, the IMF commitment would be on a case-by-case basis, on a country-by-country basis. Ultimately our participation is governed by the decisions of the Executive Board. And that’s why we use this illustrative example that we expect our financial assistance would be broadly in the proportion of our recent European arrangements as an example of the kind of participation that has already been approved by our Board in other similar cases.

Does that clarify it?

QUESTION: That -- certainly, certainly. If I could just quickly follow up. So that certainly clarifies the sort of, you know, how one should read that number as being sort of illustrative rather than sort of some kind of, you know, set in stone number.

On -- and I understand that, you know, you would use one of the range of instruments at your disposal, but do you have a sense, without prejudging it, what -- which of those instruments are more likely to be employed?

MR. LIPSKY: Oh, this we couldn’t prejudge, because this would depend on the individual circumstances of the countries involved and, at this point, it’s hypothetical. Let me re-emphasize and clarify, we do not at this time have any program negotiations underway with Portugal, Spain, or other euro zone country.

And I also would alert you that we do -- and I’ve said this before and we’ve stated this publicly, the regular annual consultation mission with Spain will begin later this week. That has been long scheduled, months and months ago.

QUESTION: Can I just ask one final –

MR. LIPSKY: Yes, okay.

QUESTION: I’m sorry. Yeah. So I just want to make clear, so you would not rule out the use of any of the instruments at this point, such as the flexible credit line?

MR. LIPSKY: No, of course. What we say is all our members have -- potentially have access to all our facilities, given the -- as long as they meet the uniform eligibility criteria. Now –

QUESTION: I’m sorry, I just want to clarify (inaudible). Is that Spanish Article IV or the euro zone Article IV?

MR. LIPSKY: Yeah, the Spanish Article IV is beginning the -- we also have, as I mentioned earlier, there is an annual euro zone, euro area consultation that is also scheduled to start in -- I believe it will be next week. And at this point, we are going forward with this.

QUESTION: Will you (inaudible) a visit by a mission or –

MR. LIPSKY: Yeah, it’s a visit by a staff mission to the European institutions, et cetera.

QUESTION: And the one in Spain is already there.

MR. LIPSKY: The one in -- actually I think, literally, there is a -- we are holding a conference tomorrow, I believe it’s in Madrid, and then the consultation itself formally begins on Thursday. But again, this is completely standard and long-scheduled. Similarly with the euro area consultation, long-scheduled.

QUESTION: So, yes, (inaudible) clarified because this number given by the Europeans have been very confusing.


QUESTION: It doesn’t mean --

MR. LIPSKY: But it’s a good thing you’re all brilliant and you will not be confused.

QUESTION: But it doesn’t mean that you’re setting aside 250 billion euros in case the Europeans would come to you?


QUESTION: In a way, you’re committing to it, to helping as much as this. So in your managing of your own finances, you know, you’re not setting anything aside.

MR. LIPSKY: Well, we -- well, no, we wouldn’t earmark any -- we have ample funds and they’re available for our members. And this wording is -- in the conclusions is very straightforward, it seems to me, that the mechanism’s activation “subject to the context of a joint EU-IMF support.” So, the mechanism -- the use of the mechanism would happen in the context of an agreement on a program and the approval. So, by definition, there would be funding on the IMF side for any specific usage that would also entail the activation -- specific activation of the mechanism.

But in a way, for the mechanism, they are going to create a funding vehicle, as I understand. Again, for the real specific details you’d have to talk to the appropriate European authorities. But in broad terms they are creating two vehicles: one the 60 billion euro fund and the 440 billion euro special purpose vehicle that would be backed by guarantees and that would presumably issue a debt on the market to raise that -- the funding in the market. So there would be a pool of money available in some way -- again, you’d have to talk to the Europeans about the actual details -- that would be available to fund operations under the mechanism. We already have funds available that would be adequate to deal with any eventuality and have access to more if we need it.

QUESTION: But just to clarify, the money you have available, it would be part of (inaudible) depending on the NAB being ratified? It has not been ratified as of today, right?

MR. LIPSKY: The new NAB.


MR. LIPSKY: The old NAB does exist. We have access to more funding. Moreover, I just put this broadly, I cannot conceive that the IMF would be unable to fulfill its responsibilities because of a shortage of funding. And there are many ways in which our membership can ensure our access to adequate funding.

The new NAB is in the process of being fully activated through ratification and should be -- hopefully, will be fully operational soon. But that does not exhaust under the Articles of Agreement our possibilities for fund-raising. So I would, again -- I think here the point is a simple one. Right now we have adequate funding available to us for operations that we foresee, but -- I guess I’ll repeat it -- I don’t conceive that our membership would fail to provide the funding necessary for the institution, for the IMF, to meet its responsibilities.

QUESTION: Today, Belka used a very interesting word. He said this mechanism is like a morphine for the euro zone. And -- but that it couldn’t a long -- it was interesting, I thought. But that it couldn’t be a long-term solution, all right, for the euro zone. I was wondering what do you think of the measures that really need to take -- (inaudible).

MR. LIPSKY: Yeah, okay.

QUESTION: We can give you -- what measures –

MR. LIPSKY: If we’re going to use a drug analogy, I’d rather use steroids. How’s that? (Laughter) Sound better?

QUESTION: What measures do you think to be needed, you know, to bring Europe’s house in order right now so that this doesn’t -- isn’t a prolonged crisis and one that doesn’t move into the rest of the world?

MR. LIPSKY: Okay. Let’s take this broadly. One of the legacies of the crisis is a high level of public debt in virtually all the advanced economies. And the Fund has said -- the Fund has made very clear that although we have the timing, the appropriate timing, of when to begin withdrawing fiscal stimulus and starting to deal with the issues of fiscal sustainability depend on the specific circumstances of each individual countries. But in broad terms we thought all the advanced economies were going to -- virtually all the advanced economies were going to face fiscal challenges, and this includes the -- most of the economies of the euro zone as well in the euro area -- sorry, the EU.

So, in this case, there were specific problems that the markets perceived that face some euro zone countries because they do not have available to them independent monetary policy or exchange rate policy as an instrument of adjustment. And so the case of Greece was a very difficult one, not only because of the scale of the problems, in part because the absolute scale of difficulties were not realized until the data was clarified. But the -- what we saw was in this very difficult context the ability and willingness of the Greek authorities, the European authorities, and the international community operating through the IMF to take very decisive action and very aggressive, ambitious action to right that situation.

And it’s -- although we’ve made absolutely clear and the Greek authorities have made clear, the European authorities made clear, that the challenges facing Greece are long-term challenges that will require sustained effort, nonetheless, it’s gratifying to see the very positive reaction to markets now that this program has been formally approved by the Greek authorities, by the Greek parliament, by the IMF, and by Europe.

Now we’ve created the mechanisms for dealing in a forthright way with other countries that face the particular difficulties of the -- and benefits as well, but difficulties of the euro zone in the sense that countries that don’t have independent monetary policy, don’t have independent exchange rate policy. As I’m sure you’re very well aware, Portugal and Spain will be announcing -- clarifying to their European partners or euro zone partners their new adjustment efforts. And now there is a mechanism for providing support where and if appropriate.

QUESTION: So, I mean –

MR. LIPSKY: Yeah, go ahead.

QUESTION: -- the thing is this can’t be a long-term solution. I mean, (inaudible) –

MR. LIPSKY: But what is the -- okay, wait. What is the “this?” What is the “this” that can’t be a long-term solution?

QUESTION: Well, I mean, the bailout is –

MR. LIPSKY: Well, if you say it’s the mechanism -- wait, wait, wait.

QUESTION: So the –

MR. LIPSKY: The mechanism’s only part of the situation. Part of -- the bedrock -- let’s be very clear. The bedrock of dealing with these problems are the efforts at stabilization and adjustment of each of the individual countries. That is the bedrock. Absent that effort, then finance -- simply applying finance is not going to provide a solution. But this mechanism or this -- the -- I’ll use -- I should find another -- process that includes the mechanism is much broader than just the financing. It proposes a strengthening of the surveillance operations, surveillance activity that will make more credible the stability and growth pact, and limits on fiscal deficits in the euro area.

So, again, to view the mechanism as the heart of the matter is to miss the basics. The heart of the matter are the efforts by the individual countries and now there is a clear framework for support for that (inaudible).

QUESTION: Can I just ask you, who came up with 250? Was it the European (inaudible) or was it the IMF? Because initially, the IMF was not going to be –

MR. LIPSKY: Well, remember, we’ve never said 250, per se, like that. Right? This is –

QUESTION: (inaudible)

MR. LIPSKY: Because it’s -- we operate on a case-by-case basis. We haven’t made any blanket commitments –

QUESTION: Well, who can?

MR. LIPSKY: -- to provide X. It was simply -- again, this is rather -- I’m not trying to say it’s wrong. It’s a hypothetical or theoretical number that would say if the mechanism was fully utilized and we can -- and that we apportion funds or provide support in the proportion that we’ve described, that it would imply a total. But this is not a matter of we pledged X.


MR. LIPSKY: It’s we pledged support if needed, if requested, on a country-by-country basis.

QUESTION: And pledged to be the IMF.

MR. LIPSKY: Well, yes, of course. But –

QUESTION: I mean, you’re reaffirming that pledge.

MR. LIPSKY: Yes, but the -- but, of course, you recognize that only weeks ago there was a serious question about what the role of the IMF would be in the case of euro area countries, and that has been clarified. The clarification has come not from the IMF side. The IMF always has stood willing to support all its members, including all its euro area members. What has been clarified in Europe is that the framework of support has now been put in place. I would say this is an important -- potentially very important and significant measure of addressing the architectural ambiguity of monetary union. And in that sense, is the very -- as I’m repeating myself -- a very important and significant step in completing or strengthening that architecture.

QUESTION: (inaudible)


QUESTION: (inaudible) I was wondering is this the (inaudible) for the euro zone to survive for the next decade?

MR. LIPSKY: Well, that’s a pretty dramatic statement. But let’s -- let me just -- let me repeat what I said. This is a very -- potentially very significant and substantial step forward in clarifying the architecture of support for monetary union.

QUESTION: So you mean like from the -- I mean, one of the arguments of this was that there is no financial cooperation between the countries.

MR. LIPSKY: Fiscal.

QUESTION: Fiscal, yes.

MR. LIPSKY: Exactly.

QUESTION: Fiscal cooperation.

MR. LIPSKY: No fiscal -- no clear cut –

QUESTION: Is this fixed now with this solution, would you say?

MR. LIPSKY: Well, “fixed” is, once again -- these are all strong categorical terms. Let’s say first came the Maastricht Treaty, then the recognition, if you remember -- you may be too young to remember. I remember.

QUESTION: No, no. Thank you very much. (inaudible) thank you.

MR. LIPSKY: First came Maastricht and the recognition that there were entry requirements, but no subsequent requirements, hence the Stability and Growth Pact. It was -- there was uncertainty about the effectiveness of the stability and growth pact. And, in fact, some of the first countries to have problems meeting the requirements were core countries. And the fact that nothing happened certainly served to create large questions in the mind of investors and others about the effectiveness of the Stability and Growth Pact.

In addition, it was recognized there were no mechanisms for fiscal coordination or potentially financial support within the euro zone. This crisis has thrown these longstanding questions into very high relief in the specific case of Greece, for example. It was clear that the mechanisms for reaching a solution for Greece or let’s say -- “solution” is too strong a word maybe and support for that program. An economic policy adjustment program and support for that program for Greece was very uncertain, hesitant and somewhat clumsy, but in the end reached a conclusion.

Now the euro area, the EU in support and the IMF have clarified that this is a -- broadly put, this is a template that will be used in the future, and the stabilization mechanism means that the financing of -- on the European side of potential support programs will be dramatically more agile, more effective and more transparent.

QUESTION: If I understand what, coming back to first question, the role of the IMF is not the sheriff in the (inaudible) process, in the (inaudible) process, surveillance of fiscal policy, and comes in, in times of crisis like these, when a country, when the ECM is put into motion. So why do you think that all the promises made yesterday or this night by the EU countries, that surveillance might be more (inaudible) are really going to work? I mean, these promises, we’ve learned, we’ve had in Europe for the last decade.

MR. LIPSKY: Yes, but we just had -- we’ve come through a rather dramatic set of strains that showed that the potential for problems in one area, even a relatively small area of the euro zone, to propagate through the zone, to propagate beyond the euro zone, to its European neighbors and potentially even beyond showed very clearly the need to take the situation seriously, to create the mechanism. Of course, that’s why I resisted your characterization of some definitive answer.

Of course, there are going to be challenges, but it strikes me some very important lessons have been learned. Some important conclusions have been drawn. Some very significant actions, concrete actions have been taken. And now, of course, we’ll all be looking forward to see them put into place because, as I’ve said now many times, the bedrock of success is going to be the efforts of each individual country.

QUESTION: You don’t feel that the stigma of dealing with the IMF will now be raised for developed countries?

MR. LIPSKY: I think that issue is if that stigma existed, it’s not the important question. The important question now is support needed. If support is needed, it will involve the IMF.

Hopefully -- hopefully -- looking forward, we can now see some very significant cases, for example, since I would point to the use of the new FCL in Poland and Colombia. And in the case of Greece, if we wouldn’t want to make too much of one day’s response, but it looks like the involvement of the IMF, the final approval of this joint program, again joint program -- Greek, European, IMF -- has had a very sharply positive impact, and markets suggest that if there’s -- perhaps if there’s stigma, the stigma is a positive stigma of enhancing reputation of underscoring the determination of the countries’ authorities to deal in a serious and forthright way, with their challenges.

QUESTION: Can you say if you are concerned if this will add to the sort of longstanding divide between rich countries and poor countries where the emerging markets and developing countries think that the advanced countries get an easier deal than they do?

MR. LIPSKY: Isn’t the important message here that the -- in the face of great strains, it has been clarified that the IMF has a central and key role in the dealing with the policy challenges and potentially financial challenges of the euro zone. So I would have thought that the interpretation of these events would be to enhance the sense of evenhandedness of IMF involvement with its member countries, both advanced -- advanced, emerging, and developing.

What has been clarified is that the euro zone is an integral part of the IMF, and the IMF has a role, an integral role in the -- in sustaining economic and financial stability in the euro zone and more broadly.

MR. MURRAY: Okay. We’ll take one more question here.

MR. LIPSKY: So I would -- I never really answered. I don’t think sheriff is a good example, a good word here. I think key partner is a better way to look at it.


QUESTION: Do you think this crisis has done anything but kind of exacerbate or underline the need for substantive fiscal cooperation within Europe, within the euro zone?

MR. LIPSKY: Let’s just say there are differing opinions about the ultimate -- or I don’t know if ultimate -- as you can tell, I feel reticent about using apocalyptic wording.

It’s clear that this represents a step toward greater fiscal cooperation and collaboration within the euro zone. It’s clear that this has been one of the responses to the strains of recent months.

It will be -- remain for the European euro zone partners to decide how much if this carries further and, if so, how much. My presumption is there will continue to be a debate within the euro zone on this critical question.

Nonetheless, at a moment in which there were questions about the commitment of the members of the euro zone to provide the underpinning, both financial and administrative and policy underpinning, to sustain it through a moment of strain, that got answered with a set of initiatives that, if anything, were more aggressive more ambitious and more decisive than had been generally anticipated.

QUESTION: But it’s necessary, but not sufficient?

MR. LIPSKY: Well, when you say “sufficient,” you’d have to say sufficient for what?

This is -- as I say, this is a very fundamental discussion. There are -- as you know, there are those who think that the ultimate end is the United States of Europe. There are others who say, never, that’s not the idea at all.

QUESTION: But just, I mean, just like a currency union, not necessarily any political currency.

MR. LIPSKY: Well, the question was could you have a currency union? What degree of fiscal coordination was necessary to sustain in a currency union?

There are differing opinions on this, but what is clear is that faced with these strains that the members were willing to take some important steps toward greater fiscal coordination and collaboration in support of stabilizing, meeting the challenges and stabilizing the circumstances. This is not a short-term challenge again because it’s so clear that further policy adjustment is needed in many countries of the euro zone.

MR. MURRAY: I want to turn the table over to those online. Do we have any further questions? And then we’re going to wrap this up.

QUESTION: Hello. I had a couple of questions.

The first one was this specification that the IMF will produce at least half as much as the euro zone authorities. Why was that chosen? Why is it so specific? Because I note it’s actually somewhat larger than the proportion that the IMF chose to provide in the Greek case.

And the second is a specific question about facilities. I know you say you look at each country that comes without prejudging, but the Flexible Credit Line, because of conditionality, is mainly (inaudible), ex post. You could, of course, do an assessment now. Can you say at this point which of the countries in the euro zone you think would qualify from its policy track record for the Flexible Credit Line?

MR. LIPSKY: Nice try. (Laughter) As you know, as I know you know, the terms of the FCL, countries are allowed to approach us in a confidential way to consult on whether the Fund staff and management would support an application for an FCL. There’s no preexisting list. We would respond in a confidential way only to the requests of our members.

QUESTION: And on the question about the loan for the two-thirds?

MR. LIPSKY: Yes. Look, we were -- if anything, we didn’t -- we were trying not to be too precise, not the other way around. Why? Because ultimately it’s a case-by-case basis. We’re not committing that we’re going to give X euros to, or SDRs worth to this process. We were just trying to give an idea that we expected that the kind of -- as you saw in the managing director’s statement, the kind of broad proportions that would be -- that have been available in recent arrangements would be what we’d expect going forward.

So we were trying to be -- to give an idea of scale, i.e., that we would anticipate very significant support, without being excessively precise in a way that just didn’t correspond to anything that we could commit to.

QUESTION: Okay. Great. Thanks a lot.

MR. LIPSKY: Thank you.

MR. MURRAY: I think we’re going to wrap that now. Thanks, everybody, for joining us.

We’ve got one question. Sorry. Here at the table.

QUESTION: You mentioned some countries to do more, Spain and Portugal to do more in their adjustment packages. And also, if I may—

MR. LIPSKY: They’re about to adjust. They’re about to. Either they have -- they’re going to present. I think let’s stick -- I know there have been press stories, but I’ll just say they’re committed to present to the ECOFIN their policy proposals later this week.

QUESTION: Do you think that’s the right thing, to do more adjustment now?

MR. LIPSKY: Yes, and I want to -- we want to make clear. Yes, but not just Portugal and Spain. What we’ve said is that there’s going to be need for fiscal adjustment in virtually -- over the next few years, on a sustained basis, for virtually all advanced economies.

QUESTION: If I may, one more last thing. Countries like Ukraine -- the question, to rephrase my initial question in a different way. Countries like Ukraine, do I understand you correctly that nothing you did for the euro zone would prevent you from helping a country like Ukraine?

MR. LIPSKY: Absolutely. Let’s be very clear. We have a universal –

QUESTION: Do you have enough resources?

MR. LIPSKY: We have -- we certainly -- we have -- we anticipate having enough resources. And, more broadly, I can’t conceive that our membership would allow us to fail to meet our responsibilities because of lack of resources.

Similarly, let me be clear. We have a universal membership and we deal with all our members in an evenhanded way.

MR. MURRAY: Every good. I’m going to wrap it there. Thank you, everybody online and here in the room. The embargo is 4:30 p.m. D.C. time, so one hour from now this information can go live on wires.

MR. LIPSKY: Before you cut off, could I say a word? One last word to everybody, is that okay?

I just want to thank you for your interest, and I must say, with the risk of sounding sycophantic, I have been impressed.

I think that you’ve all done a good job of covering what’s a complicated and difficult and fast-moving set of circumstances. And it seems to me that what I’ve read has been useful and informative, and I thank you for that as well.

That’s it.

MR. MURRAY: Okay. Great. Thank you.


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