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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