Most political and financial demands are nothing but bluffs or lies.
For example, on May 14, I noted Greece “Demands” Debt Relief, Owes Troika €11+ Billion by July.
That “demand” lasted one week. On May 22, I wrote Despite Depression, Greece Forced to Hike VAT, Add New Taxes.
Today the IMF demanded Europe to Give Greece ‘Unconditional’ Debt Relief.
Or what?
Greece’s European creditors must give the nation “unconditional” debt relief for the International Monetary Fund to provide new financing, the Washington-based fund said, laying out its position as Euro-area finance ministers meet in Brussels to discuss the bailout.
Euro-area governments should send a signal to markets that the nation’s borrowing burden is sustainable by providing debt relief before the next installment of Greece’s 86-billion-euro ($96 billion) bailout is disbursed, according to a preliminary debt-sustainability analysis of Greece’s finances that the IMF released Monday.
The IMF is proposing that Greece should be allowed to defer payments on its European bailout loans, underscoring key differences with euro-area lenders over the future of the Greek economy. While Germany has said IMF participation in the Greek bailout is indispensable, the IMF’s demands for debt relief may be too extensive for the Europeans to agree on.
“Providing an upfront unconditional component to debt relief is critical to provide a strong and credible signal to markets about the commitment of official creditors to ensuring debt sustainability, which in itself could contribute to lowering market financing costs,” the Washington-based fund said in the analysis.
Or What?
The “or what?” theory says that without debt haircuts, the IMF will walk away from being a partner in this financial ruin of Greece.
Does anyone believe the IMF’s demand?
If you do, the second question is “Will the IMF insist on a haircut amount large enough to truly benefit Greece?”
The bonus question is “Timely enough to matter?”
I try to keep an open mind. It’s possible. But is it likely?
Prove It!
If the IMF does all of the above it will be the first time in history it did anything major right.
Of course, debt relief would come after the IMF agreed to impose preposterous terms it should have known upfront Greece could never pay.
For now, it’s clear Germany does not believe the IMF. Are we supposed to?
Mike “Mish” Shedlock
“Does anyone believe the IMF’s demand?”
I agree, Mish, it is likely bluff or lie, and that it will likely be more of the same. But suppose the IMF demand is more ruse than bluff. Suppose the IMF for whatever reasons has come to the conclusion that it is better off not lending to Greece? Perhaps the old “why throw good money after bad” argument, done strictly from an IMF accounting perspective.
In other words, the IMF has decided it has gotten back from Greece as much as is possible and has decided to walk away from the game. Maybe they added things up, figured in Brexit et al. and said time to bail. In that case, the IMF would start out with small reasonable demands for EU/ECB/German haircuts that would escalate to the more outrageous only if necessary to keep the IMF out. If German banks do not even agree to a small haircut, the IMF wins the propaganda battle by appearing to be the good guy as it exits.
Gets messier and more like a high stakes poker game if the ECB/EU starts agreeing to haircuts (but the EU/ECB could have some elaborate bail-in ruses of their own to pass on any haircuts to EU taxpayers). If IMF money is crucial, then EU/ECB will figure some sharing scheme that is incomprehensible but makes taxpayers or bank depositors (i.e. someone else) pay, EU-wide if necessary to avoid creditors taking a hit. Could be an interesting poker game, with good lessons in game theory.
Yes that is possible. And I hope it happens. It’s far more likely the IMF agrees to some token BS that does nothing but kick the can. The priority it seems is to get Merkel reelected even though she has pissed off the entire continent.
Mish
“In other words, the IMF has decided it has gotten back from Greece as much as is possible and has decided to walk away from the game.”
I’m pretty sure when IMF lends it takes senior position (first in line to be repaid) …. haircuts are for the “other guys” (junior debt holders).
Ask the Poles about playing game theory with Germans. Greeks shall be punished until they leave the EU or pay the debt.
Missy Christine has been out in the sun too long on the French Riviera and her synapses are apparently fried. The IMF is making utter fools out of itself and a mockery out of its bylaws and regulations. The IMF is prohibited from lending to any debtor in default, and simply will not be able to lend a single penny to Greece in the future and the EU is laughing in total disbelief that the IMF would even suggest the inane stupidity of debt relief for Greece.
Indeed, and many of the thieving greedy Greeks now have their panties in quite a bit of a bunch over those realities.
‘Everyone’s outraged’: angry Greeks foresee Grexit and drachma’s revival
Now the man who was swept to power on a platform to eradicate austerity has passed the toughest reforms to date – overhauling the pension system, raising taxes and increasing social security fund contributions as the price of emergency bailout aid.
http://www.theguardian.com/world/2016/may/10/greece-austerity-grexit-drachma
Greeks were the first to create sovereign insolvency and default about 2000 years ago and since then they have defaulted on government debt about 7 or 8 times in an attempt to screw the people who have loaned them money to run their country, but that game which the Greeks think is so funny is about to come to an abrupt halt as they’ve totally jumped the shark this time around.
Greece needs to learn FISCAL RESPONSIBILITY and the only way to do that is to impose vastly greater austerity on Greece and force much higher taxes, much lower wages, significant cuts in pensions, and no further lending of even a single penny from outside sources until and unless they properly start paying down their vast debts. And that is exactly how it will be going forward.
It certainly seems headed in that direction. But with interest compounding on the debt, I suspect it will be mathematically impossible to stop the debt from increasing. You might eventually get principal paid back, but never all the compounding interest.
Usually in a bankruptcy, people are forced to sell their assets. Yet there is no talk of the Greek military selling all those military weapons and submarines (assets, which apparently generated much of the foreign debt). I suggest an auction of all the Greek military equipment purchased from Germany. Open the bidding to China, Russia, the Middle East etc., or simply put the equipment back to Germany (at cost minus wear and tear). Of course, that leaves Greece defenseless. I wish I could think of a way to work a Trojan horse into this.
Debt jubilee is the first step. Never having another crisis by integrating Social Credit’s universal dividend and Austrian economics’ deflationary agenda at retail sale prices is the conscious awakening of economic and money theory.
If they are serious, the IMF should set the example, by unconditionally forgiving their loans to Greece. Its all too easy to tell someone else to do it.
The IMF stated Greece needed Debt relief when this charade began and nothing has changed. The IMF will not walk as the president will make sure of it. We cannot have the waves of change hitting the EU during the Brexit vote.
Greece just passed the law in their house to get more relief at the expense of their people. I agree with chdwr on this one debt jubilee is the only way to go for the Greeks.
All of these experiments happening in Greece is coming to all of us in time. American austerity started on the elderly and now mandatory healthcare you must buy is yet another form of austerity packaged in the form of insurance.
As long as economic models depend on inflation and growth, debt will just get worse. We impose austerity on the weaker nations and turn a blind eye to debt by the stronger nations.
What defines a long-term viable state is the ability of the state to actually collect the taxes it imposes on its population. If it cannot do that, then those who do pay the legal obligation of taxes recognize the unfairness and stop paying themselves. The state collapses into debt and corruption.
Greece does not have a viable government. The Germans are now going to strip Greece of its assets. German bankers will own Greece’s ports, airports, roadways, train systems, electric and water utilities and any other revenue generating asset. Those assets will be “privatized”, prices will skyrocket, and the German bankers and their progeny will live lives of astounding luxury for generations.
This is the natural order for the weak.
Greece is in default and can never repay, many soveriegns are in a waiting list for their proceedings to be engaged
the troika has placed the entire nation in limbo, pending the outcome of the sovereign equivalent of Chapter 11