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My Big Fat Greek Bailout
IMF Blinks On Greek Debt Relief

The clock is ticking as the Eurozone works to reach an agreement on bailing out Greece today. From the looks of it, Athens will indeed get a bailout, but the IMF will blink on the issue of debt relief. Financial Times has more:  

Officials said the most likely deal would see the IMF formally join the Greek programme, but hold back from providing money to Athens until the euro area provides a greater level of detail on the debt relief it is willing to offer the country.

This would end a situation in which Berlin has insisted that the IMF participate in the bailout before it will release any more money to Athens, while the Washington-based fund has said Germany and other eurozone countries need to offer Athens major debt relief to make its repayments sustainable.

Such an arrangement would fall short of Athens’ expectations, but would unblock much needed money from its aid programme.

The deal here sounds like just the kind of short term, face-saving compromise that is minimally acceptable to each side but fails to address the underlying dispute. Germany gets the best deal, prevailing in its tight-fisted insistence against unequivocal debt relief for Athens while still getting the IMF signed on to the bailout, which was a crucial condition for Berlin. The IMF, meanwhile, will claim that it has not caved on debt relief, since the fund will not actually disburse money until a debt relief commitment is agreed at a later date.

As for Athens? Well, Greece is already grumbling that the deal is not generous enough, since the government has tightened its belt and implemented reforms in the expectation of debt relief that is still nowhere in sight. But it is unlikely to oppose its last best hope for a cash lifeline that will prevent Greece from defaulting on its loans in July.

In other words, all parties involved have agreed to kick the can down the road once more, with Wolfgang Schauble cementing his role as the clear decider. As we wrote last month, Schauble has been pushing all along for a “details later” deal to get the IMF on board with a bailout while delaying debt talks; today, he seems to have achieved that outcome. The crucial question is whether Schauble will soften his stance on debt relief after September’s elections—perhaps in line with a French compromise that would link the size of Greece’s debt relief to its economic growth—or if Berlin will remain as intransigent as ever.

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