After warning it might pull out of continued bailouts for bankrupt Greece, the International Monetary Fund has acceded to German political machinations over how to proceed.
IMF Managing Director Christine Lagarde, who had insisted that the bailouts’ European partners take a hit and grant Greece a debt cut in the 326 billion euros ($363.38 billion), it owes, backed off under pressure from German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble.
The Quartet of the European Union-IMF-European Central Bank and European Stability Mechanism last year gave Greece an 86-billion euro ($95.86 billion) third rescue package that came with more harsh austerity measures.
Prime Minister and Radical Left SYRIZA leader Alexis Tsipras, completing his surrender to the Quartet and reneging on anti-austerity vows, rammed through the Parliament his coalition with the Independent Greeks (ANEL) controls more tough reforms in a bid to get more monies released from the bailout and get debt relief on the table.
The IMF had recommended that Greece have until 2040, not 2022, to start repaying and then have 40 years to do it at an interest rate of 1.5 percent.
Tsipras wants a big cut in the total principal that is owed but Germany – the biggest contributor to the bailouts – fearing a backlash from its citizens, rejected that and the IMF’s insistence on instant relief.
In an analysis, The Wall Street Journal wrote that the IMF will recommend to its board to stay with the Greek program while Germany and other Eurozone governments only agreed to review it in 2018 and act only “if needed.”
It was a big comedown for Lagarde and the IMF who said the Eurozone demands for Greece to obtain a primary surplus – which doesn’t include interest debt, social security and military spending and the costs of running state enterprises and municipalities – of 3.5 percent of Gross Domestic Product (GDP) was nearly impossible to reach and sustain.
“The IMF agreed …that final decisions on debt relief will be delayed until the end of the bailout program, as Germany wanted,” the Journal wrote.
“The IMF said it still needs to crunch the numbers, thus withholding its final consent to rejoining the bailout as a lender. But that looks more like a face-saver than a usable escape hatch,” the paper added in a piece written by Marcus Walker.
The IMF got only vague promises and loose outlines of what the Eurozone and Germany are willing to do about Greek debt relief, dealing a blow to Tsipras who had gambled that giving in to the Quartet despite fury in the streets over his caving in would bring debt relief to the beleaguered Greek economy.
The EU made the same promise to the IMF four years ago during an earlier bailout and never acted on it so this agreement looks like a runaway win for Germany.
All Schaeuble, a hardliner on Greek austerity, agreed to was to consider relief in 2018 if the country’s debt burden keeps rising, as it has been despite the bailouts.
That means that at some point even Germany will likely have to give in because Greece’s debt, at 180 percent of GDP, is rising by the second and it looks like no amount of loans will stop it because 95 percent of the proceeds go right back to banks and the lenders, leaving Greece to shovel sand against the tide.
Merkel and Schaeuble thus got pushed back until after the 2017 German elections any prospect of Greece having the kind of relief Tsipras had crowed he would bring while his coalition was steamrolling pensioners, workers and the poor with more of the burden, letting tax cheats, politicians, the rich and the Greek shipping industry escape as it always has.
SIMMERING SUMMER OF DISCONTENT
The deal should lead to Greece getting about 10 billion euros ($11 billion) of Eurozone loans this summer, allowing the Athens government to service foreign debt falling due and pay off some of its arrears to domestic suppliers, but it’s still owed 53 billion euros ($59.08 billion) and Tsipras has to sell to skeptical Greeks that he won something from the IMF and Quartet when he didn’t.
The IMF and Eurozone have more tough negotiations over the Greek loan program while there’s no certainty of political stability in Greece if SYRIZA’s base balks after being shut out of relief that Tsipras promised he would bring.
The IMF had said that the target for Greece to have a primary surplus – not including debt on interest, the cost of running state enterprises and municipalities, social security or the military – of 3.5 percent of Gross Domestic Product (GDP) was nearly mathematically impossible to reach or sustain – which Tsipras had argued only to see it fall on deaf ears.
For all that, even Germany knows Greece must get relief in some form, if not a cut as well, in what is owed because there’s no way it can be repaid. None.
The IMF and Lagarde gave in because the board of the Washington, D.C.-based institution is dominated by Western governments, primarily Germany and the United States who want to keep Greece in the Eurozone to prevent a rattling of markets from Athens to Asia to Wall Street
“Behind the scenes … Merkel has pressed in recent weeks for the IMF to announce that it will rejoin the bailout, so that she can get the Greek issue off the table quickly without controversy in Germany,” the Journal wrote.
Germany and the US don’t think the EU can handle a new Greek crisis as the same time as a Turkey-driven refugee crisis, the rise of far-right and populist parties in Europe and the UK’s June 23 referendum on whether to stay in the bloc.
“Under pressure from its dominant board members, the IMF had little choice but to accept Germany’s preferred formula on Greek debt,” the paper added.
In the end, the biggest question though is likely to be whether Tsipras, as did his predecessors, becomes a victim of Germany just like the IMF too.