Frank Kogan

I.M.F. Insists On Greece Debt Relief as Condition for Bailout

The insistence isn't in the actual document, and the NY Times source is anonymous.

A new rescue program for Greece "would have to meet our criteria," a senior I.M.F. official told reporters on Tuesday, speaking on the condition of anonymity. "One of those criteria is debt sustainability."

This is what the report says:

There are several options. If Europe prefers to again provide debt relief through maturity extension, there would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt, including new assistance. This reflects the basic premise that debt cannot be assumed to migrate back onto the balance sheet of the private sector at interest rates close to the current AAA rates before debt levels have been brought to much lower levels; borrowing at anything but AAA rates in the near term will bring about an unsustainable debt dynamic for the next several decades. Other options include explicit annual transfers to the Greek budget or deep upfront haircuts. The choice between the various options is for Greece and its European partners to decide.

Um...

(1) Not knowing what this actually means or how these things work, or the current payment schedules, but assuming the IMF gets its way and one of the choices is adopted, what does this mean for Greece in the very important short run? Are they immediately paying less, or does that come in a while? And if Greece is still forced to run a large primary surplus, doesn't that still create all the austerity problems that will continue to lay waste to Greece? Or does the debt relief provide relief from that, too? (For sure, I don't understand economics.)

(2) But anyway, doesn't this IMF demand massively put the whole deal in question? That is, if the anonymous source is correct, the IMF has flatly said it won't go forward if Greece doesn't get debt relief. This is a twist that Germany wouldn't have been expecting, right? The NY Times's Jack Ewing reports that the IMF analysis on Friday included the idea that Greece needed debt relief, but this was ignored in the deal. So, is the IMF now telling Germany and its fellow toughies, You can't ignore it, since otherwise we're not going through with this, 'cause the terms are impossible for Greece? Is there a calculation on Lagarde's part that Germany is taking it on the chin in international opinion, so if Germany says "No" now, it looks as if Grexit is completely the creditors' doing?

And might the IMF be signaling, also, that if Greece is kicked out and defaults for sure, that's on Germany, and the IMF may be there to help Greece on the other side? Or am I making things up? Well, I'm sure I am. I don't know how these things work.

So tell me what to think.