After months and even years of wrangling, and at virtually the last possible moment, the Greek government recently capitulated to creditors’ (outrageous) demands.
Strangely, within hours of the Greek government’s surrender the IMF released a report which Reuters describe in, “Analysis: IMF threat to pull out of Greek bailout challenges Germany”:
“The International Monetary Fund’s threat to pull out of bailouts for Greece unless European partners grant Athens massive debt relief poses a stark challenge to Germany, the biggest creditor, which insists on IMF involvement in any future rescue . . . . [The IMF is] saying in essence that Greece will never be able to repay its debt mountain, . . . .
“The report’s conclusion that Greece needs debt relief “on a scale that would need to go well beyond what has been under consideration to date” . . . . To avoid big writedowns, Greece would have to be given either a 30-year grace period before it starts servicing or repaying all European loans, present and future, or large fiscal transfers by the euro zone.”
In other words, the only ways the current Greek debt deal can work is if 1) Greece is allowed to wait 30 years before it starts paying off its debt; or, 2) European creditors will have to lend Greece hundreds of billions of additional euros to allow Greece to repay its existing debt now.
Either way, Greece is broke, hasn’t paid its major debts in at least five years and won’t be able to repay existing debt for another 30 years. Greece is in default. Greece is bankrupt, although its creditors refuse to admit that fact.
“Merkel’s strategy, which debt-restructuring lawyers often call “extend and pretend”, seems likely to prevail for now.
“But if problems continue to pile up for the Greek economy and Athens falls behind in implementing the tough conditions just to start the new loan negotiations, the IMF’s insistence on debt relief will grow more compelling.”
“Compelling”? There’s nothing “compelling” about the IMF’s “insistence” on debt relief.
The IMF’s “insistence” isn’t an attempt at persuasiveness. It’s not a cogent argument.
It’s a statement of facts. It’s a mathematical certainty that: 1) Greece can’t pay its existing debts. Not today. Not next year. Probably not for 30 years, if ever; and, 2) Greece’s creditors are holding €345 billion in paper debt instruments that are already virtually worthless.
The creditors’ attempt to maintain the illusion that Greece will somehow, someway, someday repay its debts is as silly as holding on to Confederate money after the Civil War and promising that the “South will rise again”.
No it won’t. And even if it the South does rise again, it will never make the Confederate money of the Civil War era regain any value.
Same thing is true with the paper debt instruments (bonds) issued by Greece and held by Germany, the ECB, IMF and other governmental and private creditors. Greece will not rise again—at least not high enough to repay its existing debts.
The existing Greek bonds are about as worthless as Confederate paper dollars.
Why does the fiction that Greece will pay its debt persist? The likely reason is that they’re being used as collateral by various banks—perhaps at a fractional reserve banking ration of 20 to 1. I.e., for every euro held in the bank vaults, the banks can lend up to 20 euros to borrowers. For example, if the banks are holding €345 billion worth of Greek bonds in their vaults, they might’ve loaned out up to twenty times that sum—€7 trillion—to bank customers.
If that were, the Greek bonds present a big problem. If the world and/or the banks holding those €345 billion Greek bonds admits that those bonds are worthless, the banks holding those bonds as collateral for €7 trillion in loans might have to call in those €7 trillion. The impact on the economy of the EU and even world, could be devastating.
That’s probably the reason the creditors have insisted that we continued to pretend that the remaining €345 in Greek bonds are still valuable.
Or, maybe the creditors holding Greek bonds are hoping that they’ll be able to sell them to some greater fool.
But that’s not going to happen.
What’s going to happen . . . what’s already happened if anyone has the courage to face facts . . . is that Greece isn’t going to pay its remaining €345 billion debt and Greece’s creditors are holding €345 billion worth of worthless paper.
So far, so plausible.
• But there’s still a large and recent mystery hanging over the Greek tragi-comedy.
Just a few days ago, when the terms of the most recent agreement between Greece and her creditors were first publicized, virtually everyone agreed that the creditors demands were so harsh, so brutal, that Greece couldn’t possibly accept its terms.
In fact, many political commentators speculated that the creditors terms were so brutal that they were probably intended to prevent Greece from agreeing. In essence, the creditors made Greece an offer that it had to refuse. Some speculated that the creditors had had enough of Greece’s antics and wanted to end the farce, no matter what.
Virtually everyone was shocked when, instead of telling the creditors to go to Hell, Greek Prime Minister Tsipras capitulated and accepted the creditors’ brutal terms.
But, within hours of Tsipras’ agreement to endure the unendurable, the IMF issued the report (previously described by Reuters) that indicated that the proposed deal couldn’t possibly work because Greece couldn’t possibly repay the existing debt. For the deal to work, creditors would have to agree to write even more of the existing debt than had ever been previously proposed and they’d have to give Greece a 30-year “grace period” to make good on the debt.
In doing so, the IMF brought up issues and conclusions that could’ve been presented at any time for the past six months—and, at the very last moment, appears to have torpedoed the first “agreement” that people had managed to reach for months.
It was like telling a six-year old girl that somebody had run over her puppy and squashed if flat as a pancake just as she was about to blow out the candles on her birthday cake. Really? You had to tell her now, just before we were going to take picture of her and the cake?
Really? The IMF had to sabotage the Greek debt agreement at the last possible moment?
The IMF timing seemed incomprehensible. Yes, the agreement was unworkable. Anyone with an IQ of 90 knows that’s so. But did the IMF have to rub everyone’s nose in it just because they were being brutally honest? Didn’t they know that their report could prevent any agreement? It’s hard to imagine that the IMF acted out of unbridle honesty or ignorance of their report’s likely consequences.
And so we have a mystery.
For the moment, I’m left to wonder if the IMF was simply (and finally) being brutally honest. I’m also left to wonder why they weren’t brutally, mathematically honest a week ago or six months ago?
I’m wondering if the IMF released its report at what may be the final critical moment out of ignorance and incompetence or malice.
I’m left to wonder if the IMF hasn’t been secretly working all along to prevent the Greek debt deal from ever being consummated.
Remember? The most recent agreement was so draconian that many private observers suspect that the creditors had intentionally drafted an agreement that Greek Prime Minister Tsipras couldn’t possibly accept. What if those suspicions were correct?
What if Tsipras shocked everyone by agreeing to terms that guaranteed his loss of office and Greece’s loss of sovereignty?
What would the Powers That Be (and/or the IMF) do then to sabotage the deal?
Suddenly issue a new report that declared that the new deal couldn’t possibly work?
Was this most recent IMF report intended to torpedo the most recent, and perhaps last, “agreement”?
If so, why would the IMF (said to be a creature of the United States government) want the third Greek bailout agreement to fail? Does the IMF and/or US want an economic debacle that cripples the EU and perhaps the world but can be blamed on Greece?
It is a puzzlement.
All of my questions and suspicions may be answered and resolved within hours after I publish this article. The deal may go through. The IMF report may be ignored.
But until that resolution takes place, I know that:
1) About 72 hours ago, the creditors produced an ultimatum that Greece couldn’t possibly accept; and,
2) When Greece did accept the agreement about 36 hours ago, the IMF issued a new report within hours that warned that the proposed agreement couldn’t possibly succeed.
For the moment, it looks to me as if someone (apparently the IMF and/or the US government) doesn’t want the Greek bailout #3 to succeed.
If so, Why would the IMF/US seek to derail the Greek bailout?
That question is another puzzlement.
If the question is valid, the answer can’t be benign.