Weekend Economists: Spock Lives! March 6-8, 2015

[Demeter]

58. Is the IMF About to Make Greece an Offer It Can’t Refuse?

http://wolfstreet.com/2015/03/07/is-the-imf-about-to-make-greece-an-offer-it-cant-refuse/

“The bailout programs that were proposed for Greece and approved for Greece were much too one-sided. They relied too much on sacrifices on the part of Greece and not enough sacrifices on the part of Greece’s creditors.”

These words belong to a Brazilian economist called Paulo Nogueira Batista Jr. who represents 11 Central and South American countries on the IMF board. During a recent interview with private Greek television broadcaster Alfa TV, he made the following rather startling — but much ignored — assertions (none of which will be to the German government’s liking):

• The first Troika-sponsored program, in 2010, was presented as a bailout of Greece but was in reality a bailout of Greece’s private creditors. Greece received enormous amounts of money but almost all of it was used to allow the exit of French, German and other Northern European banks from their positions, which were paid at par without any contribution to the restructuring of the Greek economy.
  
  
• Any solution to Greece’s debt crisis should include a significant restructuring of debt with its official European creditors. Without a restructuring, it’s very hard to envisage Greece extricating itself from its economic and social crisis.
  
  
• The Greek government should respect the IMF’s preferred creditor status. Any debt restructuring should affect other creditors that do not have this preferred creditor status. In other words, whatever Greece tries to do, it should forget about attempting “to restructure its debt with the IMF.”

Rising Divisions

It doesn’t take much reading between the lines to realize that what Batista is essentially advocating is for European taxpayers to be left holding a bag of worthless, cancelled Greek debt while the IMF continues to get paid – to borrow Batista’s own words – “at par.” This is an offer that would completely obliterate the strict conditions recently set for Greece by Germany, the Eurozone’s biggest creditor nation, and supported by all other Eurozone nations. They include fellow Club-Med nations like Portugal and Spain whose governments Greek PM Alexis Tspiras recently accused – with some justification – of seeking to sabotage talks on extending the Greek bailout program.

This is particularly true in the case of Spain. Threatened by the rise of Podemos, an anti-austerity movement with close links to Syriza, Spain’s beleaguered, scandal-tainted government is determined to block any attempt at giving Greece more breathing space. As Spanish premier Mariano Rajoy recently told journalists in Brussels, Madrid expects Greece to repay every single cent of the €26-billion loan that Spain has lent it. “The important thing for us is that Greece, which already started growing, sticks to the rules and the commitments they signed up for in exchange for loans,” he added.

All of which makes you wonder what the heck is happening in euro land? What was actually solved last month if a) Greece will soon need a new bailout to the tune of roughly €50 billion; and b) divisions continue to rise all over the place? Even the Troika’s already fragile unity may finally be crumbling. Or is this just another variation on the good-cop, bad-cop, bad-cop routine? Is the IMF finally abandoning the largely German-written script on Europe’s bailout regime? Or was Batista merely speaking in a personal capacity, off the cuff and off message?

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