Despite all of the happy talk emanating from Brussels and Manila, the Eurozone and IMF remain at an impasse regarding Greek funding.
The German-led Eurozone wishes to fudge the numbers by lengthening maturities and lowering the interest rates on Greek debt and pushing Greece’s debt sustainability debt two years back to 2022.
Even though European leaders have pledged to do all they can to avert a Greek exit from the single currency, they’ve refused to return to parliaments for more funding. Finnish Premier Jyrki Katainen, speaking on YLE Radio Suomi at the weekend, again rejected further funds to Greece.
Eurozone’s position is not that they will do all they can to avert a Grexit. It’s actually that they will do everything except give Greece more money.
The IMF wants closure to the Greek situation and is insisting on the old sustainability target of 2020, which Greece will only meet if the Eurozone’s and the ECB’s Greek debt holdings are written down:
Lagarde said that she was approaching the talks feeling “patient and resilient.” Even so, “we never leave the table,” she said when asked about dropping support.
Some economists believe that the Eurozone will call Lagarde’s bluff
The discussions on Greece are “likely to be tense as all players set out their positions,” Thomas Costerg, an economist at Standard Chartered in London, said in an e-mail. “Greece’s debt can is likely to be kicked further down the road, but we could see some constructive statements.”
The best part of this statement is that Costerg is excited about “constructive statements;” I’ll leave it to you to decide what that means. The most telling part of this Costerg’s email is that he believes the can will be kicked further down the road; that is, the IMF will blink.
I believe that he is wrong. While Lagarde makes it clear that the IMF is not abandoning Greece in saying that the IMF will never leave the table, the implication is that they will continue negotiating until they achieve their definition of sustainability. The IMF may not withdraw, but it is not approving a deal it doesn’t like either.
This stance makes Greece Europe’s problem. Despite a backdoor bailout through ELA support from the ECB, Greece will eventually run out of money. Everyone knows this, so whether Finland, Austria, the Netherlands and Germany like it or not, there will be a public sector Greek writedown.