Κυριακή, 23 Απριλίου 2017

IMF Still Won't Sign Up To Greek Debt Deal - Turbulence Ahead

22/4/2017

By Tim Worstall

The International Monetary Fund is sticking to its guns of refusing to sign up to the debt bailout deal on offer to Greece from the various European Union authorities. Their reasoning is entirely simple. Greece simply cannot repay the amount of money being demanded and therefore should not. Everyone else is shouting that they must and how dare you start talking about reality here? The reason for all of this disturbance is simply that the original debt deal for Greece was so badly done. It's almost certainly true that Greece should simply have defaulted, left the euro and had a standard IMF bailout package. Instead, in the name of European solidarity, the eurozone insisted that the euro must be preserved and lent official money into the system all of which immediately disappeared again to pay private sector creditors.

That was simply the wrong way to do it. But the result is that it is now the various governments of Europe, and thus their taxpayers, that are owed the Greek debt. And no politician wants to cut that headline amount of debt--even if it simply cannot be repaid--because she will then have to go back to her voters and tell them, oooops, I lost your money. Which is why the current arguments. The IMF says the debt cannot be repaid so it must be cut. Everyone else is saying that it must be repaid, political careers depend upon it:

''The International Monetary Fund on Friday praised Greece's fiscal over-performance in 2016, but said it still needed clarification from euro zone governments on what debt relief Athens could expect before joining the latest Greek bailout''.

It's important that the IMF partakes. For certain eurozone governments will only take part themselves (Finland comes to mind) if the IMF does. They see the IMF as being less influenced by politics than the other players. And thus being willing to take part only if the deal is at least partially economically sensible. But the IMF doesn't think the current deal is sensible:

''European institutions and the IMF have for more than a year been at loggerheads over what the fund argues are far too stringent fiscal targets being demanded of Athens by its European creditors and calls by the IMF’s staff for Greece to receive more long-term debt relief''.

The real number discussion is this:

''Greece announced on Friday a budgetary surplus (excluding debt charges) of 3.9% of GDP in 2016, in line with targets''.
..
The eurozone says Greece can deliver a primary surplus of 3.5% of in 2018 but the IMF has said only 1.5% is feasible.

The primary surplus is also the amount you can devote to paying back debt. Thus the higher that is the more debt Greece can repay. And no one doubts that you can get it up to those sorts of numbers, 3.5%, 4%, for a year or more. But what the IMF is insisting is that no one can do that for the long term. On the very useful grounds that no one ever has. People simply will not put up with it in a democratic society.

The eurozone has backcasted this. If the debt is to be repaid then the primary surplus must be that large, thus there's your target. The IMF is doing this the right way and asking first, well, what primary surplus can be supported then therefore that's how much debt can be repaid. Without relief to get the debt down to that level then the IMF will not take part:

''For more than a year, I.M.F. officials have been saying — loudly — that they cannot participate in a new rescue package for Greece unless Europe agrees to ease Greece’s onerous debt burden''.

The IMF is right here. The Greek debt itself must be cut simply because the country will never manage to pay back what it currently owes. And money that cannot be repaid will not be, all that can be in question is how painful will the refusal to pay be.

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