IMF documents show greece needs substantial debt writedown

PM Tsipras faces a tough time

July, 4-Op-Ed: Apparently, several countries tried to stop the International Monetary Fund from publishing a very gloomy analysis of prospects for repayment of Greek debt.

The document released this week shows that Greece's finances will not be sustainable without substantial debt relief and even a significant write-off of loans. The document claims that Greece will need $55 billion and massive debt relief over the next three years to be able to stabilize its finances.

In the most recent offer that Tsipras turned down while calling for a referendum there was no debt relief at all. This shows that even if the Troika deal is accepted eventually, it will be just another episode of kicking the can down the road since in time Greece will need to return for another bailout.

The document a draft Debt Sustainability Analysis confirms what the Greeks and many liberal economists have been saying for some time, namely that the austerity programs demanded by the Troika are counterproductive and lead to debt loads that cannot be serviced. The IMF seems to be at odds with the European Central Bank, and the European Commission on this issue.

---

Greek Prime Minister, Alexis Tsipras, was quick to use the analysis to further his own position: "Yesterday an event of major political importance happened. The IMF published a report on Greece's economy which is a great vindication for the Greek government as it confirms the obvious - that Greek debt is not sustainable."

At an IMF board meeting on Wednesday many from Europe questioned the timing of the release of the report. Although there was no vote, US members on the board far outnumber those of the EU so by consensus the publication went ahead.

An IMF source said: "Facts are stubborn. You can't hide the facts because they may be exploited." That seems plainly false as politicians and others stubbornly hide unpleasant facts whenever they can.

The basic IMF argument is that with a present debt load of nearly 185 percent of GDP the Greek debt burden can be made sustainable only by a great deal more aid and a severe debt restructuring that would involve haircuts. This is precisely what EU countries do not want to hear and a position that they can never sell to their taxpayers.

Most of the debt now is public not private so the money lost comes from public coffers.

A similar EC debt sustainability analysis is much less pessimistic. It remains to be seen if this new information will influence Greek voters. Recent polls show that the Yes and No votes are literally tied although there has been a decline in the No vote since the banks closed and capital controls introduced limiting withdrawals. PayPal has ceased operations in Greece for now.

In the north of Greece bordering Bulgaria restaurants are now accepting the lev, Bulgarian currency, in payment. Business owners then travel to Bulgaria when they have a good number of levs. In Bulgaria they convert the lev into euros to help finance their operations.

Sources:
http://www.reuters.com/article/2015/07/03/us-eurozone-greece-imf-idUSKCN0PD20120150703
http://www.aljazeera.com/news/2015/07/cash-running-short-greece-150702231536391.html
https://www.cryptocoinsnews.com/paypal-shuts-greece-bitcoin-still-operates/