Changing Times

by Andrew Stuttaford

Via Reuters:

Eleven Latin American countries refused to back an IMF move this week to keep bankrolling Greece, citing risks of non-repayment, and the Fund itself said Athens might need faster debt relief from Europe. The abstention by Latin American states from the IMF decision was revealed by their Brazilian representative in an unusual public statement on Wednesday, highlighting growing frustration in emerging nations with Fund policy to rescue debt-laden Europeans.

“Recent developments in Greece confirm some of our worst fears,” said Paulo Nogueira Batista, Brazil’s executive director at the IMF, who also represents 10 small nations in Central and South America and the Caribbean.

“Implementation (of Greece’s reform programme) has been unsatisfactory in almost all areas; growth and debt sustainability assumptions continue to be over-optimistic,” said Batista, criticising the IMF executive board’s decision on Monday to release 1.7 billion euros of rescue loans to Greece. This raised to 28.4 billion euros ($37.6 billion) the total amount of funds the IMF has so far committed to Greece – an amount that Athens might default on if it gets ditched by its euro zone partners, Batista warned….

The Europeans and the United States, which have a majority of voting rights at the IMF’s executive board, have so far solidly backed Greece. U.S. Treasury Secretary Jack Lew flew to Athens earlier this month to reiterate Washington’s support. Despite having used up almost 90 percent of its 240 billion euro bailout since mid-2010, Athens is still shut out of bond markets and remains in its creditors’ emergency ward.

And notice the reference to what the IMF is saying about the possibility that Greece might need faster debt relief. Over at the Daily Telegraph,  Bruno Waterfield looks at this question in more detail. The IMF is not only arguing that Greece faces a funding gap of 4.4 billion euros in 2014 and 6.5 billion euros in 2015 (not hugely surprising, but denied by the EU Commission) but is also coming close to suggesting  that political and economic realities may dictate that the euro zone should take a haircut (that’s a polite term for a partial write-off) on some of the credit it has extended to Greece over the last few years.

That could be a touch awkward for some politicians to Greece’s north. Waterfield draws attention to this report in Ekathimerini:

German Chancellor Angela Merkel and her Finance Minister Wolfgang Schaeuble have underlined their opposition to a new Greek haircut immediately after German general elections in September but have indicated that further support for Greece could be on the cards in 2014.  In an interview with the Maerkische Oderzeitung and Sudwest Presse, Merkel stressed that she did “not see” the possibility of a new haircut for Greek debt, emphasizing however that the German government supported Greece’s difficult economic reform effort. According to Merkel, a second haircut for Greek debt would be a multi-billion-euro burden for eurozone partners.

Schaeuble struck a similar note in an interview with German mass daily Bild, describing last year’s write-down of Greek debt as “a one off.”

Germany goes to the polls on September 22. Expect no haircuts before then, at least.

The Corner

The one and only.