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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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  • Unelected Leader

    Greece is not monetarily sovereign. Hard to consider it a real country. It also runs a large trade deficit. Hollowed out industry no thanks to Germany, and the average Greek contributing an average of $2,500 each year the nation’s nearly $30 billion deficit. There’s no way to win with the euro and Abdullah Merkel as Führer.

    • Eurydice

      None of the EZ countries are monetarily sovereign.

      • Unelected Leader

        But we know who benefits from currency misalignments, and who doesn’t. Small wonder that Germany is the greatest beneficiary and is also the one pulling the strings at the expense of so many others.

        • Eurydice

          That’s a different subject. A country without its own currency is not a sovereign.

          • Unelected Leader

            Right, but it is possible for the headquarter of the supranational entity to be in one particular place and benefit it disproportionately, and it does in this case.

          • Suzy Dixon

            That’s the nub. The EU is *really* headquartered wherever Abdullah (lol) happens to be.

          • Eurydice

            Well, this generation is getting a benefit. But Greece will never pay off that debt, so we’ll see what happens to the next generation.

  • Andrew Allison

    Extend and Pretend!

  • Top Gun

    The Greek Government has to be the worst negotiators I have EVER had the displeasure of reading about. Greece owes over 300 BILLION (with a B) dollars to the European governments. The threat of defaulting on those loans would be catastrophic for Germany’s and France’s banks. In addition, the European establishment cannot afford any problems with Greece as they are entering Brexit negotiations.
    Greece has all of the leverage. What do they do? Once again Greece folds a hand of pocket aces. Wow.

    • Andrew Allison

      Not exactly. Despite the exposure of Germany, France and Italy ($210B as of mid-2015) it is the threat of default which, because it threatens the “extend and pretend” shell game, provides the leverage. An actual default might put an end to the eurozone and to Chancellor Merkel’s political career, but would also cut Greece off from the monetary heroin to which it is so utterly addicted.
      The EU lenders and governments know that the money will not be repaid, they just don’t want to face the consequences of acknowledging the fact. The real problem is Italy which, with $58 billion in loans to Greece, a banking system on the brink, a moribund economy, and $2.3T in government debt would likely have to follow Greece out of the eurozone, and thereby put an end to it. I wouldn’t be surprised if the day after a Greek default, Germany announces a return to the D-mark.

      • Top Gun

        I agree it’s the threat of default that is the leverage. Greece doesn’t seem to know how to use that leverage though. There is a compromise sweet spot between total default and total austerity (I.e managed debt reduction) and Greece has shown it is incompetent at bargaining. No matter how much Germany is against debt reduction, destruction of the EU is a far worse threat to Germany and its huge trade surplus.

    • Eurydice

      Those pocket aces are no good if the player is broke.

  • Dan Kearns

    Oh Germany! Will this third– luckily, less violent– time really be the charm for the “win years of battles only to eventually lose the war because of the strategic flaws present from the very beginning”?

    Some are “all hat but no cattle,” but Germany is “all brilliant operational art but no strategic survival sense.”

    3 times now in a single century, they’ve gotten to the top of the greasy pole in a way guaranteed to doom that very success. It’s like watching Charlie Brown take another kick at Lucy’s football, for goodness’ sake. 🙁

  • Andrew Allison

    It was Germany, which had said it would agree without IMF particpation, which blinked: “The accord, however, wasn’t enough to get the International Monetary Fund to agree to lend to Greece now, something euro-area countries have sought since the latest bailout was inked in 2015. The Washington-based fund, which co-financed Greece’s first two rescue programs, held off giving the country more loans until it becomes assured that Greece’s 315 billion-euro debt will become sustainable.”(

  • f1b0nacc1

    A “French Compromise”….is that anything like “French Leave”?

    In this case, it is….

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