Politicians are human beings, and our species excels at saying one thing and doing another. The troika is squabbling amongst themselves about Greek debt sustainability and has reached an impasse. This is the IMF’s position:
“We want a real fix, not a short-term fix,” IMF spokesman William Murray told reporters in Washington today.
“Critical to us is Greece’s debt sustainability,” Murray said. “That means that by 2020 we want to see Greece’s debt at 120 percent of its gross domestic product.”
In order to achieve that goal, the debt will have to be written down further. Contrast that to the Eurozone’s position:
Germany, the biggest contributor to the bloc’s bailout funds, has repeatedly rejected the idea of taking a loss on holdings of Greek debt, saying it would be illegal.
The Eurozone has also delayed the 120% sustainability date to 2022 without the IMF’s consent.
The ECB sides with the IMF believing that a further write-down of Greek debt is inevitable.
Regardless of what anyone is saying, negotiations are deadlocked. IMF President Christine Lagarde is even cutting off a trip so that she can attend a Eurozone finance ministers meeting next week.
For political reasons, the German-led Eurozone does not wish to write down Greek debt. Since this is really the only way to achieve a supposedly sustainable Greek debt load of 120% of GDP by 2020, further can kicking is being considered.
The Germans wish to only consider the plan up until 2014, just long enough to get past elections and much cheaper to boot.
The IMF is against further can kicking and wants a long-term solution to get Greece on track for sustainability.
Once again, brinkmanship politics rule the day, which is what the 4th Iron Law of the Eurocrisis tells us to expect.
Over the next few weeks, the IMF and Eurozone will stare each other down. As Greece gets closer to running out of money, the markets will begin having a tantrum. Then, cooler heads will prevail and a face-saving agreement will be negotiated.
This can will be kicked again.