No Progress Made on Greek Aid Deal

Euro zone, IMF make progress on Greece: Juncker | Reuters.

The Reuter’s headline is accurate. Juncker says that the eurozone and the IMF are moving forward on a deal to adjust Greece’s second bailout and release the next tranche of aid, but he cannot cite what this progress constitutes:

“We are working intensively on a compromise with the IMF on Greece and are making progress,” he said, adding it remained to be seen how much the differences had been narrowed by Tuesday’s meeting of euro zone finance ministers and the IMF.

Juncker is following the 1st Iron Law of the Eurocrisis, “When it gets serious, you have to lie.”

The IMF and the eurozone have reached an impasse. As per its usual procedure, the IMF will not give more money to Greece until its on a path towards debt sustainability as agreed to in the second bailout of 120% of GDP by 2020. This position requires debt forgiveness by the ECB and eurozone.

The German-led eurozone wants to push back the goal two years and make some cosmetic changes to Greece’s debt load. It will not write down the debt claiming that doing so is “illegal,” never mind many other actions during the eurocrisis are technically illegal under the various agreements that compose the EU, eurozone and ECB.

Even German economists believe that the debt must be written down to make it sustainable.

Since it is now election season in Germany, political parties are rushing to take advantage of the situation to strengthen their own positions. The CSU and FDP are talking of a Grexit to bolster their own anti-bailout credentials, a very popular stance among voters. Meanwhile, the leftist SDP is taking a pro-Europe tack by warning that Germany should honor the agreements it made during the June Eurosummit.

Don’t worry because Greece will gets its money just in time. This impasse is a typical troika eurocrisis fighting tactic in line with the 4th Iron Law, “Nothing gets done unless a crisis is created first.”

By creating a crisis, both sides in the dispute are able to agree to a compromise without offending their constituents too much, whether its the IMF paymasters or the German voter.

 

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