The sight of politicians walking hat-in-hand into meetings with the International Monetary Fund officials has been humiliating for voters in Greece, Ireland and Portugal and unnerving to their European neighbours. Now, bond investors are casting wary eyes on Italy and Spain.
During a visit in early December to Brazil, one of the emerging economic powerhouses that could help pull the world economy out of the ditch, IMF chief Christine Lagarde said that the international crisis lender was working mostly behind the scenes in the eurozone crisis.
"I'm very happy if the IMF is in the middle of it, but in an effective way, not necessarily a visible way," she told broadcaster Globo News in Sao Paulo.
When the eurozone crisis first broke into the open in Greece, the European Union struggled - first, to muster the political will to keep Athens afloat and then, on a technical level, to forge a rescue fund and conduct a bailout.
As the international crisis lender to its 187 member countries, the IMF has a long track record of working with governments in budgetary trouble and brings the credibility to reassure financial markets. "The fund has the mechanisms in place," IMF spokeswoman Conny Lotze told dpa.
Many economists argue that the eurozone, through the European Central Bank, could rescue its own budgetary basket cases without outside help, at least in theory. But the IMF brings not just money but a symbolic value that the rest of the world stands behind Europe.
"Although the eurozone could handle this crisis with its own resources, and clearly bears the key responsibility, there is likely to be a very useful role for the IMF to play," Douglas Elliott, a fellow in economic studies at the Brookings Institution, a top Washington think tank, told a House of Representatives committee on Thursday.
The IMF role in the eurozone bailouts can "help reassure financial markets that the total resources necessary would truly be available," he said.
"Most importantly, the IMF is in the best position to impose conditionality on lending to troubled eurozone countries, since it is viewed as more dispassionate and less political about Europe's situation than would be true for purely European institutions," Elliott said.
"It has the history and technical resources to credibly impose conditions on disbursements of funds as they are needed. Further, it can provide a great deal of technical advice, which is more likely to be taken when the IMF is also a provider of funding. We listen more carefully to people who are also providing us money."
The first impacts of the IMF's loan conditions are seen in budgetary direct pressure to staunch the flow of red ink: tax hikes and stepped up tax collection; cuts to government payrolls, subsidies and welfare-state benefits; and auctions of state-owned companies and other assets.
But the budget axe is soon followed by similarly unpopular economic reforms to boost the anaemic long-term growth rates that are at the root of the eurozone troubles.
In Greece, for example, the country is being required to make far-reaching reforms to loosen its labour market and reduce barriers to doing business.
Greece is receiving money to make economic adjustments under a Stand-By Agreement, which is the "workhorse" of IMF credit facilities, "used in many urgent balance of payments crises," Lotze said. The measure is meant to give governments in fiscal trouble "breathing space" during the worst of the crisis so they can start to bring their houses in order.
Ireland and Portugal were each granted an Extended Fund Facility, which is a similar IMF programme, but has longer repayment periods than the Stand-By Arrangements and somewhat lower interest rates. Greece could eventually convert to an Extended Fund Facility, but there is no specific timetable.
"The IMF could play a very useful role in any comprehensive solution (in the eurozone)," Elliott said, "by providing some of the firepower to reassure the markets, and, more importantly, by supplying discipline to the execution of the rescue plans through enforcing conditionality on loan disbursements."
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