By Paul Taylor
PARIS, March 24 (Reuters) - For months, euro zone countries have resisted any suggestion that debt-stricken Greece should turn to the International Monetary Fund for assistance.
Now, at Germany's behest, the 16-nation single currency bloc seems close to agreeing that the Washington-based global lender would play a substantial role in any financial rescue for a euro zone country in trouble.
The arguments for involving the IMF are mostly financial, while the case against it is mainly political. Here are some of the pros and cons of an IMF role in the euro area:
WHY INVOLVE THE IMF?
The senior international financial institution has decades of experience of managing fiscal adjustment programmes in Asia, Latin America and Europe. G20 nations, at the European Union's initiative, agreed last year to increase the IMF's resources and boost its role in anchoring global financial stability.
It is already involved in the 27-member EU, managing rescue packages for Hungary, Latvia and Romania.
The IMF combines greater expertise than the European Commission with a mechanism for disbursing loans in tranches to ensure step-by-step compliance, and a thick skin capable of resisting political pressure and public protest.
Euro zone members are among the biggest contributors to the IMF. Greece's so-called IMF quota would enable it to borrow at least $12-15 billion at lower interest rates than it is paying on the credit markets.
Involving the IMF would get around a clause in the EU treaty which bars euro zone member states from bailing each other out. It would also reduce the cost of any financial support to euro zone countries such as Germany and France.
WHY KEEP THE IMF OUT?
The euro zone is an economic and monetary union which must be able to solve its own problems through a mix of collective discipline and financial solidarity with members in difficulty, opponents of an IMF role say.
European Central Bank President Jean-Claude Trichet and the chairman of the Eurogroup of euro area finance ministers, Jean-Claude Juncker, have opposed an IMF role as politically humiliating and financially unnecessary.
The nominee for ECB vice-president, Vitor Constancio, told the European Parliament on Tuesday that Greece was already implementing IMF-style austerity measures under EU guidance, so the IMF would add no value. He also said IMF lending would never be enough for the annual needs of Greece.
"That is something that Europe can do and should do," he said. "We have the means to do it ourselves. Why involve another institution?"
Supporters of closer European political and economic union say any perception that Greece was taking measures prescribed from Washington by an organisation in which the United States has a veto would be a blow to euro zone independence.
Many financial market players say they would prefer a euro zone solution, although IMF involvement would be better than no rescue at all. IMF programmes often involve debt restructuring, so if the IMF does get involved, bond markets may start to build in premia to account for an outside risk of technical default.
WHAT'S IN IT FOR GREECE?
The IMF could be expected to give Greece cheaper credit than it can find on the markets and send a signal of confidence to private lenders that Athens is under strict supervision.
Based on the Fund's recent action in Hungary, for example, Greece would have to pay an interest rate of about 2.7 percent on up to $12 billion, far less than the 6.5 percent it would currently have to pay on the market, and even lower than the 3.1 percent that Germany pays.
Prime Minister George Papandreou has argued that Greece now risks the worst of both worlds: it is implementing IMF-style budget cuts under EU supervision without getting IMF money. Meanwhile, Greece is paying contributions to the IMF anyway.
Politically, taking IMF money and orders would bring home dramatically to Greeks the severity of their country's financial problems, but it could be more acceptable than the perception that Athens is taking orders from Germany and getting nothing.
WHAT'S IN IT FOR GERMANY?
Political and legal opposition to a European bailout for Greece appears so strong in Germany that Chancellor Angela Merkel cannot commit Berlin to a solely euro zone rescue.
Involving the IMF sends a signal that Germany is not willing to be the lender of last resort for the euro zone, relieves domestic political pressure against any German involvement in a rescue and may satisfy the German constitutional court's interpretation of the EU's no-bailout clause.
An IMF loan to Greece, even accompanied by bilateral loans from euro zone partners, would cost Germany less than a straight euro zone rescue, of which it would have to fund at least one-third as the currency area's biggest economy.
Insisting on an IMF role strengthens Berlin's negotiating hand with its EU partners in demanding stricter euro zone budget discipline rules. The IMF is seen as tougher on enforcing austerity than the European Commission.
Furthermore, the Germans can block any European rescue for a country in difficulty unless they get their way.