Greece has made a suggestion for a 2 year bailout plan under the ESM. The program includes debt restructuring and the ejection of the IMF. The medium term solution and the other ideas all sound good, but they are probably unacceptable in Germany.
Here are the advantages and why chances are low for a YES from Germany:
Advantages
- Long term: Greece has been limping from review to review and recently from a short term extension to another. It was granted a 4 month extension in February and was offered a 5 month deal just before the weekend. A medium term solution of 2 years has a a better chance of boosting investors’ confidence and giving the government and the euro-zone time to rebuild rather than to engage in endless summits.
- Debt restructuring: Everybody knows that Greece is unable to pay its debt. This includes the IMF that always wanted debt restructuring, and the US that supports debt relief for Greece. With less burden on its head, Greece has a better chance to return to growth and eventually pay more debt.
- No more IMF: While the organization led by Lagarde supported debt restructuring, it has championed austerity that has devastated Greece and actually brought the current SYRIZA government to power. In addition, Greece still is a developed country and having the IMF is inappropriate. In addition, the euro-zone should be able to take care of its own mess.
Why Germany would not like it:
- Time frame: Short time frames keep the pressure on Greece and talking Greece diverts attention from other issues.
- Debt: Germany strictly opposes debt forgiveness for various reasons. Culturally, debt is viewed more badly in Germany than in many other places. The German word for debt is the same one for guilt: schuld.
- Debt 2: In addition, letting Greece not pay its debts could open the door to other debt restructuring schemes in other places. The zone’s locomotive does not want to spread moral hazard.
- IMF: Merkel was the one that wanted the IMF involved in order to spread the responsibility. Having all of Greece on her shoulders is an undesired move and was rejected several times.
Update: The Eurogroup meets at 17:00 GMT and is expected to reject the offer.
What do you think?
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