IMF Throws a Spanner in Proposed Greece Deal, Says Financing May Not Be Enough

[marmar]

from Naked Capitalism:


IMF Throws a Spanner in Proposed Greece Deal, Says Financing May Not Be Enough
Posted on July 14, 2015 by Yves Smith


The IMF today took a stronger version of the line it has been taking recently on Greece, that the it may not be able to carry the debt about to be imposed on it. Given that the ECB’s strangulation of the banks has taken the weakened economy to a lower level, and it’s not clear when the ELA will be restored, it’s likely that the the IMF can’t even make an assessment until conditions have stabilized.

One also has to note that the IMF has dropped this shoe before the Greek government has passed any of the legislation required in the pending deal.

The fact that an organization that believes in austerity, at least on the program side, has never been able to make the math on Greece work even with its dubious assumptions is pretty damning. The question then is why is the IMF piping up now?

The issue that the IMF flags, and this is a killer from the Eurozone perspective, is that the way that the Eurozone members want to give Greece debt relief is via interest rate reductions and extension of maturities. It will not reduct the face value of the debt; that was stated explicitly in the letter to Greece. The reason for not lowering the face amount of the debt, as opposed to using other means to lower the economic value of the loans, is that given how the loans to Greece have been structured (the governments did not fund them in cash but gave guarantees to lending facilities) is that a writedown would result in the need to pay investors for the loss immediately. That means big bills to taxpayers under Eurozone rules, which put strict limits on government deficits. By contrast, the payments on the loans to Greece now are so attenuated that even in the event of a total default, the losses would be recognized gradually over decades, starting in 2020, and would be much less painful. ............(more)

http://www.nakedcapitalism.com/2015/07/imf-throws-a-spanner-in-proposed-greece-deal-says-financing-may-not-be-enough.html

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1. yup. the troika is clinging to the usual idiot lender fantasy of manageable writeoffs.

there are two ways out for bad debts. one is massive help for the debtor, which only works if you through a ton of money and the debtor behaves responsibly; the other is to take big write-offs as soon as possible and get over it and just move on.

the middle of the road is nothing but yellow stripes and dead armadillos. but the middle road is what europe has consistently chosen, unable to recognize enough write-offs, yet unable to give greece enough to actually help them. so they keep greece on life support while the sickness rages on, a path that is sure to lead only to larger write-offs and greater pain in the future.