IMF and Merkel Clash

Softening stance on Greece, Merkel rules out default | Reuters.

I have been writing that Greece will not allowed to default for two months. A Greek default is expensive and €30bn is very cheap in comparison.

Merkel will allow the IMF to disburse the next tranche of Greek aid, though there will be a cost. The IMF’s position is that the current Greek fiscal situation is unsustainable. Part of the original bailout deal with the troika is that Greece should have a 120% debt to GDP ratio by 2020.

By charter, the IMF is not allowed to loan money to countries who cannot maintain stable debt ratios. In order to reach some kind of equilibrium, Greece will need more money. Allowing it to push off deficit goals for two years will require about €20-30bn. To fill this funding hole, the eurozone and ECB will either have to write-down their Greek debt holdings or increase aid.

The northern tier likes to open their mouths but not their wallets. Until you see cash change hands do not assume that Greece will receive the next round of loans in November.

dareconomics.wordpress.com

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