IMF Will Force Greece Into Immediate Default Unless EU Agrees on Further Funding

According to Reuters, the IMF will make further release of financial aid under the current package dependent on a decision by the EU to secure funding for Greece for 2012 later. 

“We have violated all rules of law because we agreed that we really wanted to save the euro zone.”

Christine Lagarde

The EU leaders are all over the place discussing a possible so-called reprofiling of Greek debt, but a vote on a second loan package for Greece is not expected until the autumn. Greece will, however, run out of funding in July, which would mean that the country would immediately cease all public payments.

And the pressure is building in both Athens and in Brussels.

Reuters quotes the Dutch financial newspaper Het Financieele Dagblad that reports on the EU secretly preparing for a voluntary debt rescheduling – or reprofiling – despite increasingly dire warnings from the ECB and ratings agencies.

Moody’s warns that a reprofiling would constitute Greece to default.

Fitch also says that any maturity extension, including a voluntary one, would constitute a default.

And S&P is even more specific say that any changes to a bond that reduced its net present value would constitute default – leaving virtually no options.

No Consensus

One of the conditions for a new EU package is cross-party support in Greece.

But George  Papandreou could not get support from opposition leaders for his new austerity measures, the Greek newspaper Kathimerini reports.

The leader of the main conservative opposition New Democracy Antonis Samaras said he supports the privatisation plans but not the planned tax increases, calling for tax reduction instead.

Smaller parties were even more hostile towards the programme.

Greece’s creditors have been pressing the government to seek consensus for the deeply unpopular reforms before submitting to Parliament.

The government has a comfortable majority in Parliament and should be able to pass the reforms without the support of the opposition.

But EU officials including Olli Rehn says a certain degree of political consensus is necessary before agreeing on a new aid package, Reuters reports.

The European Christian Democrats, led by Angela Merkel, want to put pressure on Samaras to back a new IMF/EU programme, as they did in Portugal.

A Treuhand for Greece

Another proposal have also been put on the table by Jean-Claude Juncker, to set up a Treuhand-type privatisation agency for Greece.

The FT writes that the delay in the privatisation programme has pursued EU officials to press hard for a Treuhand solution, which would be an independent body, with oversight from the IMF and the EU.

According to the article, this was one of the central topics of the “secret” meeting in Luxembourg. a few weeks ago.

The Sisyphos of Our Time

Frankfurter Allgemeine Zeitung’s Athens correspondent Rainer Hermann reports on the newly promised additional consolidation measures in Greece.

He arrives at a depressing conclusion:

While acknowledging the efforts Prime Minister George Papandreou has undertaken Herman nevertheless sees parallels with the Greek mythology.

“The Greek government looks like Sisyphus”, Hermann writes.

“Whatever he did, he always had to start over again. This government, despite its good intentions, hardly has the power any more to accomplish what it has to undertake to safe Hellas.”

In Defence of the ECB

In his column in FT Deutschland, Wolfgang Münchau writes that he sides with the position of the ECB, specifically the demand to limit the degree to which politicians want to dump their own inability to solve the crisis onto the central bank. 

Adding that the ECB has acted flexibly in the past, as it is the job of a central bank to support the financial system in a liquidity crisis.

But as it is now becoming clearer that Greece faces problems with its solvency, the responsibility lies with politics, not with the central bank any more, Munchau points out. 

Meanwhile, German economic experts are going bananas over the euro rescues, and accuse the constitutional court of foot-dragging.

All Laws Have Been Violated

The German professors opposed to the EFSF accusing the constitutional court in Karlsruhe to drag its feet by not coming up with a decision on the constitutionality of the rescue fund, Süddeutsche Zeitung reports.

According to insiders more than 50 complaints have been introduced in Karlsruhe against the rescue of Greece and the creation of the EFSF.

But so far the court has not ruled and some of the opponents fear that further developments in the euro crisis will create a fait accompli which will make it impossible for the court to rule against the rescues. 

At the same time the court has almost no other choice than to rule that EU law was violated.

After all it was Christine Lagarde who told the Wall Street Journal recently:

“We have violated all rules of law because we agreed that we really wanted to save the euro zone.”

Legal experts agree that a negative ruling would prohibit Germany to continue to take part in the ongoing rescues.

One of the consequences would be that the bonds issued by the EFSF would immediately lose its triple-A-rating.

According to the Süddeutsche Zeitung, the court will rule before the summer break.

Welcome to yet another day of excitement in the Euro Zone Tivoli Park!

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5 responses to “IMF Will Force Greece Into Immediate Default Unless EU Agrees on Further Funding

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