IMF to Bail on Greece

Greek Strike Sees Violence as Police Use Tear Gas by Parliament – Bloomberg.

The Greek people have drawn a line. I do not think they will abide further attempts at austerity. Samaras is losing control of the coalition as PASOK and the Democratic Left object to further budget cuts without additional concessions from the troika.

The reason why negotiations have been put on hold for the last few days is that a screaming match erupted between the Greek finance minister and the leader of the troika negotiating team. The time off from negotiations until the 3oth is supposed to be a cooling off period.

In light of this tension, what is the IMF trying to do by stating that Greece cannot meet its objectives? If the IMF believes that a country cannot stick to its program, then it is supposed to withdraw financing. The IMF backing out of the Greek bailout will cause Greece to default.

Even though Greece being booted out of the eurozone keeps being mentioned by German politicians, a Grexit would be very expensive for Germany and its eurozone partners. This could be a Lehman situation where Greece is allowed to fail causing much greater pain than anticipated, but I believe that the Germans are posturing for political points at home.

The IMF is saying that the current plan is unsustainable; however, if the eurozone countries and the ECB write down the Greek debt they own, the plan still has a chance of working in the long-term. Perhaps, this is what the IMF is trying to accomplish.

dareconomics.wordpress.com

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