Tag Archives: unsustainable debt Greece

IMF Won’t Eat its Words: Greek Debt Relief in Need

greek debt crsis third memorandum july 15 2015

International Monetary Fund (IMF) Greece Debt Relief is Needed

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—and what
has been proposed by the ESM. There are several options. If Europe prefers to again provide
debt relief through maturity extension, there would have to be a very dramatic extension with
grace periods of, say, 30 years on the entire stock of European debt, including new assistance.
This reflects the basic premise that debt cannot be assumed to migrate back onto the balance
sheet of the private sector at interest rates close to the current AAA rates before debt levels have been brought to much lower levels; borrowing at anything but AAA rates in the near term will bring about an unsustainable debt dynamic for the next several decades. Other options include explicit annual transfers to the Greek budget or deep upfront haircuts. The choice between thevarious options is for Greece and its European partners to decide.

See also The Deep Deformation of Europe by Elli Louka

The Deep Deformation of Europe

deep deformation of europe book cover

The Deep Deformation of Europe: Economic Conflict in the European Union

The Deep Deformation of Europe: Debt Bondage under the German Hegemony

Greek Debt Unsustainable: the Wikileaks Cables

Greek protests in front of Greek parliament

2011 Euro-crisis, Wikileaks Cables

Discussing the Greek financial crisis with her personal assistant on 11 October, German Chancellor Angela Merkel professed to be at a loss as to which option–another haircut or a transfer union–would be best for addressing the situation. (The term “haircut” refers to the losses that private investors would incur on the current net value of their Greek bond holdings.) Merkel’s fear was that Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt. Furthermore, she doubted that sending financial experts to Greece would be of much help in bringing the financial system there under control. Within the German cabinet, Finance Minister Wolfgang Schnaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in, while France and European Commission President Jose Manuel Barroso were seen to be in favor of a gentler approach. European Central Bank President Jean-Claude Trichet was solidly opposed, with IMF Managing Director Christine Lagarde described as undecided on the issue. Finally, Merkel believed that action must be taken to enact a Financial Transaction Tax (FTT); doing so next year, she assessed, would be a major step toward achieving some balance in relief for banks. In that regard, the Germans thought that pressure could be brought to bear on the U.S. and British governments to help bring about an FTT.

Euro-crisis Wikileaks Cables: EU Summit: Germans Prepared to Oppose Special Solutions for Greek Financial Crisis

…German Chancellery Director-General for EU Affairs Nikolaus Meyer-Landrut provided on 14 October, 2011 an overview of what Berlin planned to ask for and would be prepared to support. First, the German government wanted solutions that work within the context of current European legislation; accordingly, it would not agree to giving the European Financial Stability Facility (EFSF) a banking license, establishing a joint EFSF-European Central Bank Special Purpose Vehicle, or any other measures that would require legislative changes among the member states. On the other hand, the Germans would support a special IMF fund into which the BRICS (Brazil, Russia, India, China, and South Africa) nations would pool funds for the purpose of bolstering eurozone bailout activities. Meyer-Landrut also believed that a resolution of the Greek crisis will require greater private-sector involvement than was first thought, and that the eurozone must look beyond the technical aspects of a deal and focus instead on the actual progress that Greece will have to make, as regards both legislation and implementation. It was his further opinion that a full-term team will have to be ensconced in Athens for the purpose of monitoring the situation.