In the wake of an IMF threat to back out of the Troika deal with Greece, Germany blinked under the IMF pressure.

Well, sort of.

The result was not quite the debt relief the IMF wanted, but it was more than Germany was prepared to offer yesterday.

Please consider Berlin Opens Way to Greek Debt Relief Talks.

Germany eased its objections to debt relief talks for Greece on Monday as eurozone finance ministers sought to narrow their significant differences with the International Monetary Fund over Athens’ €86bn bailout.

With Greece facing €3.5bn in debt payments in July that it will be unable to meet without support, eurozone ministers said they were ready for a political push to break a stalemate between creditors over austerity measures and Athens’ debt burden.

The political space for a deal was opened on Monday by the readiness of Wolfgang Schäuble, Germany’s finance minister, to explore ways to ease Greek debt repayments. He had, until then, strongly resisted such talks as unnecessary, putting IMF participation in the programme in doubt.

Ministers said they would seek an agreement at a meeting on May 24. The package would require Greece to prepare “contingent” budget cutting measures to be enacted if its public finances failed to sufficiently improve, as well as parallel commitments from eurozone nations to deliver on promises of debt relief, covering the short, medium and long term.

[Mish Comment: the noose around Greece tightens further]

The talks framed the discussion around options, such as interest payment holidays or extensions of debt maturities, while deferring the hard political battle over what is actually needed.

[Mish Comment: They agreed to kick the can, nothing more.]

“Today was about opening the debate, exploring options and giving political guidance to the technical people,” said Jeroen Dijsselbloem, Dutch finance minister and chair of the eurogroup of finance ministers.

[Mish Comment: They have been debating this for years.]

This may not go far enough to satisfy the IMF, whose managing director, Christine Lagarde, reiterated in a letter to EU ministers last week that Greece’s budgetary targets were unrealistic and that any effort to meet them should be based around deep economic reform rather than arbitrary, and potentially damaging, cuts.

[Mish Comment: The targets are still absurd.]

Some creditors may demand, however, more detailed commitments from Athens on what exactly would be triggered.

[Mish Comment: the noose around Greece tightens further]

Governments have firmly and repeatedly rejected any formal writedown of their holdings of Greek debt, leaving them to look at other options, such as longer grace periods and extended payment timescales.

An ESM paper, seen by the FT, outlines a range of options including 5-year maturity extensions, capping annual loan repayments at 1 per cent of gross domestic product until 2050 and capping interest rates at 2 per cent. One more radical move mentioned is to buy out the IMF with cheaper and more long-term ESM loans.

Mr Tsakalotos said the discussion, while very broad at this stage, was a breakthrough: “It’s a great relief that we’ve had this debate on debt,” he said. “We are working on a situation where Greece can at last turn the corner.”

EU officials have made clear they do not want messy negotiations to clutter the run-up to the UK’s Brexit referendum on June 23 — meaning if no agreement is reached this month, discussions will not resume until shortly before a possible Greek default.

What a Joke!

  • The EU cannot tackle this issue out of fear of Brexit.
  • The EU agreed to do something, without saying what that means.
  • The EU is tired of IMF interference and wants to buy the IMF out.

The idea that noose tightening will allow Greece to “turn the corner” is the biggest joke of all.

It’s truly a sad state of affairs when the IMF makes more sense than anyone else in the picture.

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Mike “Mish” Shedlock