For the umpteenth time, the IMF has warned that Greece cannot meet fiscal targets set by its creditors. And once again, the IMF insists that it will not be a part of the “Troika” unless the goals on Greece are realistic.
History suggests the IMF will cave in to Germany and agree to some half-baked plan (make that 1/8th baked plan) that will supposedly put Greece back on track. Such nonsense has been going on for years.
Here we go again: IMF warns Greece Won’t Meet Fiscal Surplus Targets Set By Europe.
Greece’s primary budget surplus will rise to 1.5 percent over the long run from about 1 percent last year, amid a modest recovery, the IMF said Monday after executive directors met to discuss the fund’s annual assessment of the nation’s economy. Still, the projected surplus falls short of the 3.1 percent forecast by the country’s European creditors.
The fund reiterated its view that Greece’s debt is unsustainable. Most of the executive directors don’t believe the economy needs more fiscal consolidation, the IMF said.
The IMF has said it would consider giving Greece a new loan to supplement the 86 billion euros ($92 billion) it’s receiving from euro-area countries, but only if the nation’s debt-reduction plans are credible. [Mish comment: How many times have we heard that?]
Greece’s government debt will reach 275 percent of its gross domestic product by 2060, when its financing needs will represent 62 percent of GDP. Public debt will reach 181 percent of GDP this year, the IMF projected Monday.
Time for Greece to Break the Deal
The Failed Revolution notes Yanis Varoufakis, the former finance minister of prime minister Tsipras, calls on Tsipras to Break the Destructive Agreements.
The following as translated and explained by the Failed Revolution, from http://www.efsyn.gr/arthro/rixi-me-tis-pseydaisthiseis.
Varoufakis wrote among other things:
The night of the Greek referendum, I tried hard to explain to the Greek PM that the submission of Greece to the third memorandum was Schäuble’s real plan (not Grexit).
In reality, there was no hope that the 3rd toxic “program” for Greece would be rationalized progressively through the support of the European Commission to Athens. Meaning, there was no hope that IMF’s austerity and anti-social measures could be soften. The fact that Moscovici, Juncker, Sapin and others gave such promises, is no excuse because the Greek government knew since May 2015 that these people know how to tell lies, or, they are unable to keep their promises when they don’t lie.
Suddenly, the Schäuble-IMF-ECB attacked on Greece, demanding exhausting measures, while Merkel-Hollande-Commission didn’t do anything. Tsipras then retreated for one more time in order to “save” Greece. This was Schäuble’s plan.
Tsipras promises, one more time, that he will not retreat (this time!) by legislating new austerity even after 2018. If he means it, I remind him what we had agreed that is necessary and which – even today – is the only thing that may prevent the worst things to come.
Prepare for unilateral restructuring of Greek bonds held by the ECB, which must be repaid in July (and after).
Prepare the electronic system of transactions through Taxisnet which I had designed, I had started building it and even announced it to the new Minister of Finance, Euclid Tsakalotos, when I delivered the Ministry.
Therefore, if indeed the Greek PM means it this time that he will not retreat, he should prepare for breaking the deal with the creditors, so that to prevent it. The design of a parallel system for payments is ready since 2014, as he knows.
No Reason to Act Now
I offer one significant improvement to the plan: Stall for 3 months.
Wait for the IMF to do what they say. If the IMF acts first and backs out of the deal, it will put extreme pressure on Germany to provide relief.
Schäuble has stated Germany will not provide any more credit relief. So why act now?
Instead of acting in advance, Greece can blame Germany and the IMF unless there is significant relief. And as a side bonus, Merkel will take the hit for having a country exit the Eurozone on her watch.
Won’t that be fun?
Another Greek WTF Showdown Moment Explained
I wrote about much of this a few days ago in Another Greek WTF Showdown Moment Explained.
The IMF has once again threatened to pull out of the Troika following a warning that Eurogroup Loan Measures Not Enough for Greek Debt.
The IMF argues correctly that Greek debt is unsustainable. Previously the IMF correctly argued Greece could not maintain a primary account surplus of 3.5 percent.
Yet the IMF now demands Greece automatically implement rules forcing it to have a primary account surplus of 3.5 percent of GDP as far as the eye can see.
Last week Eurointelligence reported that Greek officials were elated the much-despised IMF might exit the program. Although Greece hates the IMF, the IMF has at least been partially on Greece’s side, arguing for debt reductions.
Were the IMF to actually pull out to happen, Schaeuble wants Greece out of the Eurozone.
Meanwhile, Eurozone officials pretend the program is working when they know full well its not.
This is one of those WTF moments where statements from Greece, from the IMF, and also the Eurozone make no apparent sense.
Yet, despite the obviously apparent nonsense, it’s possible to piece together what’s happening.
- Neither Germany nor the Netherlands is willing to throw Greece the smallest of bones for fear of election consequences. It’s far easier for Eurozone nannycrats to pretend things are running smoothly.
- Schaeuble has long wanted Greece out of the Eurozone. But Germany does not want to take the blame. Instead, Schaeuble wants the IMF or Greece to take the blame.
- The IMF does not want the blame either, so it takes a preposterous stance that the debt is not sustainable but a 3.5% primary account surplus for as far as the eye can see is sustainable. The IMF takes this view despite having argued many times that 3.5% is not sustainable.
- By pretending to now be in favor of 3.5% perpetually, the IMF can argue it is not one-sided to Greece.
- Despite the fact the IMF is more on Greece’s side than Germany or the Eurozone nannycrats, Greece hates the IMF so much that its position of not wanting the IMF involved overrides common sense.
- As an alternative to point 5, consider the possibility that Greece wants outs of the Eurozone, but none of the politicians want to take the blame. Instead, the politicians want to blame the IMF or Germany and are just itching for the IMF to get the hell out so they could do what they wanted to years ago (exit the eurozone). In this possibility, Greece looks to place the blame elsewhere and is waiting for the right moment.
Troika Blame Game Theory
Points 1-4 are certain. Points 5-6 are pick one. Despite the apparent absurdity of conflicting views and the IMF’s changing stance, blame game theory explains all you need to know. Here is a shorter synopsis.
- Greece wants to blame the IMF and Germany
- Germany wants to blame Greece and the IMF
- The IMF wants to blame Greece and Germany
Make the IMF and Germany Commit First
Greece has four reasons to stall, making the IMF and Germany act first.
- If the IMF does not insist on debt relief, Greece can blame the IMF and Germany.
- If the IMF does insist on debt relief and Germany will not go along, then Greece can blame Germany.
- If the IMF and Germany do not provide enough debt relief, then Greece can blame both of them.
- If the IMF and Germany provide enough debt relief, then Greece wins as well.
Greece is in a no-lose setup if it stalls long enough to get the IMF and Germany to play their cards first.
Expect Trump to Pressure IMF
Trump has stated Greece should abandon the Euro, and Germany is a currency manipulator.
Thus, it is reasonable to believe Trump may threaten to pull funds from the IMF unless they cooperate.
Cooperation in this case means backing out of the Troika deal.
- Trump Drives a Wedge in the EU
- Trump Accuses Germany of “Currency Exploitation”: Merkel vs. Trump, Is Either Side Telling the Truth?
Mike “Mish” Shedlock