Q. We all know this is the group that’s negotiating the bailouts around the EU, and that’s in the middle of the Cyprus mess…. But who are they, exactly? Where’s their authority come from?
A. Well, the Troika consists of the EU, the ECB, and the IMF. Funnily enough, the most common use of the term “troika” before these crises was in all those Russian novels– characters were always jumping in to their carriages drawn by 3 horses to go somewhere. And the speed with which the Troika moves makes the analogy a good one.
Q. So those three groups– the EU, the ECB, and the IMF– are jointly negotiating these arrangements? But they each represent massive bureaucracies.
A. Yes, and the power of the negotiators is therefore limited, a real problem in moving quickly. The EU is represented by its executive arm, the European Commission– but even that is 27 Commissioners, and what they propose is subject to ratification by the member states. Of course, Germany is one of those, and is perceived to, effectively, be calling the shots… but all 17 states have to say yes to anything for it to become effective.
Q. OK, how about the IMF?
A. So this is the world body that most typically has done the lending to deeply troubled countries– Mexico, the Asian crisis, Russia, Argentina. Its role has dramatically increased since the crisis, and its lending authority is up to $750 bn now. They have the most experience, but have only been providing a minority of the money in, for example, the Greek bailout.
Q. And the ECB?
A. Of course, this is the European Central Bank. It’s already been providing emergency cash to Cyprus under the so-called “ELA”, a crucial element that kept runs on banks from happening earlier in Greece. It’s other big weapon right now is “OMT”, the brainchild of Mario Draghi: “outright monetary transfers” by which it can buy sovereign bonds to bring down interest rates in countries. Lots of folks think that if Cyprus does leave the EU, the interest rates in Italy will zoom and force hundreds of billions of dollars of OMT”… which is why a $10bn price tag for the Cypriot bailout looks so miniscule.