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IMF To Greece: Keep Your Word Or No Dough

As debt-laden Greece nears default, the EU is still in fundamental disarray over what to do. Yesterday’s dollar infusion by various central banks helped turn down the temperature, but the IMF’s bailout plan that would keep the Greeks afloat looks dicey. Reports the FT:

Christine Lagarde, head of the International Monetary Fund, on Thursday raised the spectre of her organisation withholding its portion of an €8bn ($11bn) aid payment Greece needs by the end of this month, saying Athens had implemented requisite economic reforms “in parts”…”If there has been no implementation, we don’t pay,” she told CNBC, in describing the IMF’s lending practices.

EU politicians, on the other hand, seem content to let Greece muddle through without quite closing its budget deficit:

Ms Lagarde’s comments differ from the views of the IMF’s partner in the Greek bail-out negotiations, the European Commission, which EU officials said is largely satisfied with Greece’s recent concessions. These include a property tax that is expected to raise about €2bn this year to fill a €1.7bn gap in the budget.

Here, the IMF is impatiently trying to push fiscal responsibility on the profligate Greeks, who want to do as little as possible while still collecting a bailout. The European Union looks increasingly ready to do what it always does: hem and haw, fake and fudge, and pursue the path of least resistance. The only thing worse than defaults by the PIIGS from the perspective of the French and German pols who dominate the EU would be the exposure of their own complicity in mis-regulating European banks – which is what encouraged the irresponsible lending fiasco that fueled this debt crisis in the first place. Happily at least Lagarde and the IMF seem to be clear-eyed enough to demand that the Greeks get a better handle on their own borrowing.

Meanwhile Finland’s proposed collateral scheme which could derail the whole plan is slowly creeping toward a possible deal:

Eurozone finance ministers will also attempt to resolve a major hurdle holding up Greece’s €109bn bail-out agreed in July – a demand by Finland that it get collateral in return for its backing of rescue loans.

Greece could end up offering either shares in state-owned companies or “illiquid” commercial real estate as collateral. Countries that decided to participate in the collateral scheme would, however, be forced to give up something in return, perhaps lower returns on their portion of the rescue loans.

This thing is (still) not fixed!  Where do you kick the can when you’ve come to the end of the road?

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  • Ken Moore

    Another possibility is mentioned by Mish Shedlock quoting Hans-Olaf Henkel. Germany and the strongest EU members could leave the Euro and establish a Euro I , allowing Greece and others to devalue Euro II but remain banded together.

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