In a “breakthrough” agreement to kick the can until after the next German elections, the IMF backed down on its demand for immediate debt relief for Greece now.

According to the agreement, Greece will have to maintain a primary budget surplus of 3.5% of GDP, a condition the IMF argued as impossible, just a few days ago.

Please consider Greece Reaches Debt Relief Breakthrough with Creditors.

Creditors have decided on measures to provide short, medium and long-term debt restructuring on Greece’s 180 per cent debt mountain, having been locked in eleven hours of negotiations in Brussels, ending at 2am local time, writes Mehreen Khan in Brussels.

As part of its measures, Greece will gain a short-term re-profiling of its loans, while more expensive debt could be “swapped” with cheaper loans to bring down the country’s overall financing costs.

A statement from finance ministers said:

“The Eurogroup agreed today on a package of debt measures which will be phased in progressively, as necessary to meet the agreed benchmark on gross financing needs and will be subject to the pre-defined conditionality of the ESM programme.”

“We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” said Mr Dijsselbloem.

[Mish Translation: We called the IMF’s bluff and won. Hooray!]

Greece could also receive around €1.9bn in profits held by the European Central Bank to pay back its loans by mid-2018. Creditors also agreed on a “mechanism” to provide further long-term restructuring to keep the country’s financing costs below 20 per cent of GDP by 2060 – a key threshold demanded by the IMF.

[Mish translation: Well, we had to kick the IMF a bone to make it like we really did something. Besides, possible debt relief to the tune of €1.9bn in profits on a €300bn debt is very generous of us.]

EU member states did not however relent on their target of a 3.5 per cent primary surplus to be hit by the Greek economy by 2018 – a key issue of contention between EU member states and the IMF, who had called the target “unnecessary” before today’s talks. This target could however be revised after 2018, said Mr Dijsselbloem.

[Mish comment: Unnecessary?! WTF? I point out IMF Calls on Europe to Give Greece ‘Unconditional’ Debt Relief. The IMF did not use the word “unnecessary”. In a Leaked Lagarde Letter this is what Christine Largarde said in regards to maintaining a surplus of 3.5%: “let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive.” The IMF proposed 1.5%. How the Financial Times got “unnecessary” out of that is a mystery.]

“This is a very important moment in a long and sometimes difficult story”, said Pierre Moscovici, European Commissioner for economic affairs.

[Mish translation: Hooray! We win!]

IMF representative Poul Thomsen said: “We have all shown flexibility” following months of institutional wrangling between the fund and its EU partners.

[Mish translation: Damn, Germany called our bluff.]

The debt relief measures were also “not quantified” by creditors said Mr Dijsselbloem but would be “made to fit” whatever criteria needed to ensure Greece’s debt sustainability.

[Mish translation: We know, Greece knows, and the IMF knows Greece’s debt is not sustainable. For the sake of the next German election, someone has to suffer, and it won’t be us.]

The IMF is set to issue a new set of calculations on debt sustainability before confirming its part in Greece’s third international bailout.

[Mish Comment: The IMF’s calculations will be revised to show what emphatically would not work yesterday, will emphatically work today.]

But Wednesday’s agreed measures fall short of the bold recommendations to reduce as much as 50 per cent of the net present value of Greek debt by 2060, which the IMF had called for a day before the meeting.

[Mish Comment: Things changed. That’s what happens when bluffs are called.]

“The language suggests creditors and the IMF have papered over cracks, but that this is going to require another revisit”, said Mujtaba Rahman at Eurasia Group. “The IMF was hoping to take politics out of the debt relief discussions going forward. This deal doesn’t do that.”

[Mish translation: The creditors and the IMF have papered over cracks. This is going to require another revisit. The IMF was hoping to take politics out of it, but decided to go along with Germany and screw Greece when its bluff failed.]


The only thing I am uncertain of here is whether or not the IMF was bluffing as opposed to flat out lying, pretending to be the “good cop” when all along it wanted to stab Greece in the back.

Plan a revisit in a year or less. Greece will not maintain a primary surplus of 3.5% of GDP.

Mike “Mish” Shedlock