The International Monetary Fund warned publicly at the end of June Greece needed write-offs to make the burden of its Olympic-size debt sustainable. Clearly the rest of the Eurozone didn’t get the memo (or pretended not to) and the situation has since got a whole lot worse. So the fund has gone for what one might call the nuclear option.
An official warned last night it might not, under its own rules, be able to take part in the latest €86bn (£60.7bn) bailout at all if there isn’t ‘concrete’ debt relief. It also published a damning assessment of the deal’s prospects, having passed it to Eurozone leaders privately on Sunday and seemingly been ignored.
The report said growth forecasts for Greece were improbable, expecting it to run a primary budget surplus of 3.5% was unrealistic and that there were effectively no plans to address the ‘root’ problems of its banking system. The IMF also predicted the stricken economy’s debt would hit a staggering 200% of GDP, having said less than three weeks ago, before banks were shut and capital controls introduced, it had already peaked at 177% last year.
‘The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,’ the report said.
So now what? Firstly, the Greek government has to pass a raft of extremely unpopular reforms tonight in order to even unlock the estimated €7bn it needs to reopen its banks and pay down debts to the European Central Bank and, you guessed it, the IMF. And that’s before the talks on the actual bailout even get started.
But prime minister Alex Tsipras was already facing a revolt by his own Syriza MPs and likely have to rely on opposition support. And he said last night he doesn’t even support the deal, which he agreed to enact with his arms effectively twisted by the Germans. Now with the IMF’s blistering intervention it’s not clear the laws demanded by the rest of the Eurozone will pass.
And even if they do the IMF has said it currently wants no part of the next bailout, which would leave the Eurozone an estimated €16.4bn short. The debt relief it says is so necessary (but won’t enact unilaterally and so break its own strict rules) is anathema to the Germans. Unless Angela Merkel can find a way to sell it to her sceptical voters, we may be staring down the barrel of a Grexit once again.
The irony of the latest twist in this tragicomic farce is Tsipras hadn’t wanted the IMF to be part of any new bailout, but was forced to accept its involvement by Germany. And now the fund is demanding what the Greek premier wanted all along: debt relief.