The International Monetary Fund (IMF) has missed a warning shot in the Greek debt dispute Germany. In a new blog entry is the IMF’s chief economist Olivier Blanchard, the federal government prior to unpleasant truths. Blanchard outlines two cases of the progress of the Greek crisis. In both the German taxpayer would lose a lot of money.
Should Greece exit from the euro, would be “the be extremely expensive for Greece and its lenders undoubtedly” writes Blanchard. The introduction of a new currency would not only be connected to many “extremely complex” legal and technical issues.
“It would also likely become a strong economic crash cause,” writes Blanchard. “It could take a long time until a new currency results in a substantial reversal”, warns the IMF’s chief economist.
During this time, Europe would have to Greece financially under the arms billions to alleviate the horrendous economic consequences for the population. Germany would lose a lot of money.
The money is gone, either way
The federal government has some 80 billion euros in aid for Greece in the fire are. Well about half of that money would be lost in the event of a euro exit, according to experts. There may also come then applied billion for humanitarian aid in the event of Grexits.
They could go on about EU structural funds in Greece. But whether standing ready money at all and rededicated let alone be sufficient in case of a severe economic downturn, is questionable. A euro exit of Greece, through which the leaders want to take a final decision this weekend would therefore lead to immense risks and financial losses.
However, in the case of staying in Greece in the euro are threatening European taxpayers painful losses, as Blanchard makes clear in his blog entry. The economist believes that despite the negative Greek referendum last Sunday still “room for agreement could be present”.
This should be based on the reforms that have been discussed before the referendum. A new, submitted on Thursday evening proposed by the Greek government is at least in this direction.
Blanchard provides clear out that the euro zone is facing a political choice : “less harsh reforms and reduced the budget surplus targets mean higher costs for the donors countries.” For less demanding requirements for the budgetary targets and less structural reforms would “cause greater financial assistance and debt relief” on the other side to.
The IMF is pressing as the Greek Government for a long time on a haircut. The International Monetary Fund believes without this step can Greece do not carry its debt permanently. However, the debt sustainability is a prerequisite for further aid from the IMF to Greece. And the IMF should, according to the will of the federal government remain absolutely on board.
Merkel resists haircut
At the same time, the Federal Government, however, defends against a “real haircut”, as Chancellor Angela Merkel until Thursday stressed again. You can imagine most debt relief in the form of longer loan maturities or lower interest rates.
Merkel is under pressure. In their group there is resistance to a real haircut. And the bitter pill would also their voters not easy to sell, would be the first time since the Greek bailout taxpayers’ money lost.
But the IMF sees no other choice. Even as the EU and Greece agreed on new, lower targets in the budget surpluses a few weeks ago, the Fund made it clear: If these goals are issued, Europe can not ignore a debt cut
It is clear that for the IMF also that in a softer compromise the financing needs of Greece increases. Last week the IMF revised its debt-sustainability analysis of financing needs of Greece clearly upwards. Was previously of 30 to 40 billion euros, the speech, the IMF spoke of 50 billion and put clear that this forecast was made before the nearly two-week bank closures in Greece.
Since then, the financial needs of Greece rose again significantly as the economy suffers extremely. Compromises towards Greece would cause so Blanchard, that the country needs billions more.
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