On the same day Matteo Renzi suffered a crushing defeat at the hands of alleged “populists” in Italy, German finance minister Wolfgang Schäuble ruled out debt relief for Greece ahead of a eurozone finance minister meeting.


Schäuble says Greece Must Reform or Leave Eurozone.

Greece must implement economic reforms if it is to keep its place in the eurozone, Germany’s finance minister has insisted, ruling out debt relief for the country ahead of a crucial euro group meeting on Monday.

As the finance ministers of member states using the single currency prepared to discuss fiscal plans for the coming year, Wolfgang Schäuble in effect presented Greece with an ultimatum: either it must enforce unpopular structural reforms or exit the bloc.

“Athens must finally implement the needed reforms,” he told the newspaper Bild am Sonntag in an interview [in German] published on Sunday.

“If Greece wants to stay in the euro, there is no way around it – in fact completely regardless of the debt level.”

Asked if German voters should be prepared for the inevitability of debt relief in the run-up to national elections next year, Schäuble quipped: “That would not help Greece.”

Schäuble, who also asserted the Greek budget was not burdened by debt servicing because interest rates were now so low, made the comments as speculation mounted over how best to put the thrice-bailed-out nation back on the road to economic recovery.

Facts of the Matter

  1. Greece has an unsustainable €330bn debt load.
  2. On May 6, In Leaked Letter IMF Tells Germany “Debt Relief for Greece or IMF Drops Out”.
  3. On May 23, the leaked letter became an official announcement: The IMF warned “EU Must Give Greece Unconditional Debt Relief”.

In a strongly worded assessment, the IMF said that there was no prospect of Greece meeting the draconian terms of its current bailout plan and that interest payments on the soaring national debt would eat up 60% of the budget by 2060 in the absence of debt forgiveness.

The debt sustainability analysis by the Washington-based Fund said Greece should have longer to pay, have the interest rate on its loans fixed at 1.5%, and that its creditors should make debt relief automatic once the bailout programme ends in 2018.

“The implementation of debt relief should be completed by the end of the programme period”, the IMF said.

The IMF said that Greece’s national debt as a share of GDP would fall from just over 180% this year to around 140% by 2030 if debt relief was provided. The alternative, it added, was that Greece would face an ever-higher bill for servicing its rising debts.


If Greece does not get debt relief, the IMF said it would drop out of the program.

If the IMF drops out of the program, Germany will have to pony up more money.

At one point the IMF worried about Greece having debt to the tune of 110% of GDP. Now, 140% seems acceptable and the IMF is even willing to wait until 2030 for such progress.

Schäuble’s Game

Schäuble has caught the IMF bluffing several times on such threats. Schäuble has caught Greece bluffing countless times.

Flashback May 24, 2016: Germany Calls IMF’s Bluff and Wins: Greece Screwed Again

Nonetheless, the facts show that history has not exactly rewarded complacency this year.

Should lightning strike again, please remind me to put Schäuble’s announcement in my book of Great Timing Moments in Political History (as soon as I get around to writing such a book).

Schäuble will not be up there with …

Nonetheless, Schäuble’s timing appears to be perfect. Angela Merkel will not exactly be pleased if the IMF drops out of the Troika at this moment given all that is going on with Italian banks, the Italian referendum, Beppe Grillo, and Marine le Pen.

For discussion, please see Renzi Resigns Following Crushing Referendum Defeat: Beppe Grillo, Marine le Pen, Matteo Salvina Tweets.

Mike “Mish” Shedlock