IMF and EU at odds over need for debt relief in Greece
The rift between the IMF and the Euro zone countries became clear when the IMF insisted on releasing a document arguing that without substantial debt relief, Greece could not manage its debt repayments.
Euro zone countries tried to delay release of the document until the final negotiations for a bailout deal with Greece had finished but to no avail. The US virtually controls the IMF and no doubt demanded the release specifically to influence the outcome. The document also suggested that debt relief might require a substantial write off or "haircut" of loans.As I see it, the plan of Finance Minister Woflgang Schaeuble of Germany was to present two options to Greece, a Grexit with some sweeteners or a completely humiliating, painful, bailout plan that originally required transferring over 50 billion in Greek assets to a Luxembourg firm to be privatized. Tsipras managed to transfer the fund to Athens with Greek control but under Troika supervision. This will achieve exactly the same result — privatization of any remaining Greek national assets at fire sale prices — but it looks better when Greeks help out the process. Greece was required to erase all its red lines and pass legislation immediately reducing pensions, retirement age, and increasing taxes often on those least able to pay. Schaeuble no doubt believes that the bailout terms will produce an unsustainable debt level resulting in default and a Grexit, what he has wanted all along. There was mention of discussion later on of debt restructuring in the bailout agreement, but specific warning that there would be no haircuts and that Greece must fulfill all its debt obligations.Now the IMF has come out with an analysis of the EU offer to Greece that warns Eurogroup ministers that the Greek public debt is "highly unsustainable." It urged debt relief on a scale "well beyond what has been under consideration to date." Recognizing the Eurogroup reluctance to allow haircuts, the IMF suggests Greece should be given 30 years to repay all its European debts and extension of maturity of other debts.The Eurozone governments will contribute between 40 and 50 billion euros to a new bailout, but the IMF is also expected to contribute another major amount. Funds will also be produced by sell-off of state assets. Greece will also have renewed access to borrowing from financial markets. The IMF said it will not participate unless there is a clear plan. No doubt this meant to refer in part to a clear plan for restructuring that will make debt sustainable. Greece already has missed two deadlines for paying 1.6 billion euros on IMF loans. According to BBC correspondent Chris Morris, the IMF report was written before the bailout agreement was reached in the early hours of Monday morning. The report was shared with Eurozone leaders in advance.The changes recommended by the IMF might foil Schaeuble's plan for a bailout system that is unsustainable and force a Grexit. However, the IMF suggestions may not be accepted. Some countries, such as France, might support the IMF suggestions but Germany may by now be irritated at the IMF interference in the negotiations by the Eurogroup and see the whole affair as an attempt by the US to trim Germany's influence in the EU and also ensure there is no Grexit. The U.S. may not only see a Grexit as destabilizing but may also be concerned that a Grexit would draw Greece more into the Russian orbit and out of NATO. Within Germany, the Netherlands, and certainly Finland a Grexit plan would no doubt find majority support. Even should a restructuring of the debt be possible it will do little to lift the austerity measures, and nothing to prevent the alienation of Greek resources, and hence would do little or nothing to improve the life of the average Greek.