Submitted by Tyler Durden on 07/30/2015
09:43 -0400
Over the course of six painful months of
negotitations between Athens and its creditors, one concern lurking in the
background was whether the IMF would be on board with a third program for
Greece.
Questions over the IMF's role in the new €86
billion aid package came to a head this month when two consecutive
"leaks" showed that according to an internal analysis of Greece's
debt sustainability, the Fund would not be able to participate in the new
bailout unless EU creditors were willing to write down their portion of
Greece's debt.
This touched off a politically charged and
explosive debate which pitted the IMF (and, by implication, the US) against
Brussels (and, by implication, Berlin) on how to go about providing debt relief
for the Greeks - the IMF pushed for haircuts, while Brussels favored
"re-profiling."
Now, we get the first sign that the IMF may be
ready to officially pull out. Here's FT, with the breaking story:
The International Monetary Fund’s board has been told Athens’ high debt
levels and poor record of implementing reforms disqualify Greece from a third
IMF bailout of the country, raising new questions over whether the institution
will join the EU’s latest financial rescue.
The determination, presented by IMF staff at a
two-hour board meeting Wednesday, means that while IMF staff will participate
in bailout negotiations currently under way in Athens, the Fund will not decide
whether to agree a new programme for months – potentially into next year.
That delay could have significant repercussions –
particularly n Germany, where officials have long said it would be impossible
to win Bundestag approval for the new €86bn bailout without the IMF on board.
According to a four-page “strictly confidential”
summary of Wednesday’s board meeting obtained by the Financial Times, IMF
negotiators will “participate in policy discussions” to ensure the eurozone’s
new bailout “is consistent with what the Fund has in mind”.
But they “cannot reach staff level agreement at this stage.”
EURUSD is not reacting well...
FT goes on to note that "the IMF decided
last week that its existing bailout programme ... needed to be scrapped because
it could no longer achieve its stated goal of helping Greece recover to the
point where it could return to private debt markets." That, in turn,
"forced Athens to request a new IMF programme, which requires board
approval, necessitating Wednesday’s meeting."
All of this comes at a decisively inopportune
time. As discussed extensively earlier, PM Alexis Tsipras has now called for a
Syriza referendum on the bailout, a move which marks the culmination of weeks
worth of political infighting. The fractious relationship between the PM and
Syriza hardliners might well unsettle creditors and the IMF's refusal to commit
until the debt relief issue is solved only adds to the confusion.
Back to FT:
According to the summary, IMF staff concluded
Greece no longer clears two of the four requirements in the IMF’s
"exceptional access criteria" – the Fund framework that allows it to
grant bailouts of larger-than-normal size.
Under the criteria, a bailout recipient must be able to prove it has the
“institutional and political capacity” to implement economic reforms, and
that “there is a high probability that the member’s public debt is sustainable
in the medium term”.
Between Syriza's internal problems and Europe's
indecisive stance on debt relief, it's clear that neither of these conditions
have been met, which throws the IMF's participation into question because after
all - and here's the punchline - Lagarde has to "be mindful about the
reputation of the Fund."
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