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To Pay or Not To Pay
Thinking The Unthinkable

Few are expecting any breakthroughs at yet another Eurogroup ministers on Monday, even as Greece girds itself to pay off another tranche of its massive IMF debt. Greece has drawn as much as €35 billion in loans from the Fund over the last five years, and has €750 million due on Tuesday. It owes another €1.5 billion in June and then again that much in September. €3 billion in payments are due to the ECB in July and August.

So far the debate has, in broad strokes, centered over whether the Greeks would enact a package of reforms agreed to by their predecessors, which include major changes to pensions and labor markets, in exchange for a disbursement of €7.2 billion from the EU’s bailout fund. The negotiations have been framed in much of the media as either the Greek side being unwilling or unable to bend far enough to release these bailout funds, or as the Europeans being too inflexible in their own demands. Once the bailout funds were disbursed, both narratives seemed to imply, disaster would somehow be averted.

Of course, this was never true. And ever since news leaked that the IMF itself had warned EU creditors that they would very probably have to take a haircut on their Greek holdings even if all the reforms were enacted, skeptical voices have started to put pressure on European leaders to start thinking the unthinkable. Angela Merkel, in particular, is facing mounting opposition from within her own party:

“The euro would be strengthened if Greece left,” Alexander Radwan, a Merkel-affiliated lawmaker who voted for granting Greece a temporary extension of its bailout in February, said in an interview. “The other countries could then move closer together and apply the rules more strictly.” […]

As talks between Greece and its creditors drag on, the view that the euro would be stronger without Greece is gaining ground in Merkel’s Christian Democratic-led bloc, according to two lawmakers. They asked not to be identified because they don’t want to publicly challenge Merkel.

“Having its own currency could help Greece get back on its feet,” Hans-Peter Friedrich, one of 29 lawmakers from Merkel’s bloc who voted against extending Greece’s aid program, said in an e-mailed answer to questions.

With Ekathimerini reporting that some members of Alexis Tsipras’ cabinet are toying with not paying the IMF loan on Tuesday if tomorrow’s ministerial meeting in Brussels goes poorly, a Grexit could come sooner rather than later. Even though a late payment won’t officially be reported as such by the IMF until a month later, and even though credit ratings agencies have gone on record as saying that a technical default to the IMF would not be automatically counted as a default in their eyes, crossing such an important threshold so publicly could precipitate a big bank run, after which the crisis would be much more difficult to control.

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  • Corlyss

    The kabuki is getting tiresome. The Greeks should just say they aren’t going to repay and dare the rest to do anything about it. They owe the EU billions. Isn’t there some adage that says the big debtors own the bank?

    • Boritz

      The saying goes:  If I owe you $100K, I’m in trouble.  If I owe you a $million, you’re in trouble.

      • Corlyss

        I think you need to edit that.

        • Boritz

          If I owe you $100,000.00, then I am in trouble(1).  If I owe you a $1,000,000.00 then you are in trouble(2).

          (1) serious debt
          (2) screwed

  • ljgude

    Nice to see that some voices in the EU are seeing that at some point Greece is a bigger threat to the EU project inside the EU than outside it. The usual idea that a Grexit would trigger a domino effect in southern Europe is balanced by these voices that are saying the lesson of Greece might help the other countries in trouble do what is necessary to fix their problems. I’ve read that the Irish have made great progress and I notice that they are no longer mentioned as often and that Club Med has become more common that PIGS.

    • Tom

      Well, there’s the PIGS and the PIIGS. The latter has Italy and Ireland, the former only Italy. The Irish are bound and determined to make their own way. The rest don’t seem quite as determined.

      • ljgude

        Thanks for reminding me of PIIGS. Yes I was really happy to hear that the Irish were getting ur from under. My sense of Ireland is that it finally got a taste of prosperity and knew they had earned it through industrial innovativation and hard work after all the desperate poverty going back so many generations. So I think they have fought back with great spirit. Perhaps they will inspire the less enthusiastic debt saddled nations you allude to either climb out of debt, or despair and go Greek.

        • Kevin

          I think there is even some limited evidence that the voters in countries like Spain are less enthusiastic about following Syriza’s example.

          • ljgude

            Yes, we seem to be at a point where people are making up their minds which way to go. I hope we are moving beyond the apparently endless denial about the Greek situation which only gets worse. In the end that approach has to hurt the EU and already has because it encourages the other debtor nations to not face the situation. I am not an absolutist on this problem either in that I think the lenders extended credit too easily – well beyond the known parameters of prudent banking and deserve, if not a haircut, a judicious trim here and there. From what I understand northern Europe needs these economies as markets and can expect some pain in exchange for keeping them in the Euro. But Greece should be allowed to go back to the more elastic Drachma and get on with selling cheap retsina to hoards of northern Europeans in their laudable attempts to revive the cult of Dionysus.

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