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Germany led the European opposition to reject any kind of debt restructuring for Greece. They insisted that Greece must make “reforms”, aka more austerity and that that is the  only  way out. One reason is that the  German public  would not react positively to seeing losses on Greek bailouts. Some had suspected the Europe  did not want to  negotiate with Tsipras. In any case, there was a clear German Nein to any debt relief.

However, things have materially changed, and it’s not only he resounding NO vote in the Greek referendum. Here are 5 developments that lead  us to suspect that Germany is about to accept some form of debt restructuring for Greece:

  1. An option for the German  Deputy  Chancellor: Sigmar Gabriel, Germany’s economy minister, was one of the toughest speakers against Greece. He even did the “dirty work” for Merkel. While he continues the tough line, he said that he “only sees debt reduction upon Greek reforms”. So even  if for Gabriel many many conditions apply, this is now an option. Is he doing the dirty work for Merkel once again? He may be  ballooning an option before his boss goes for it.
  2. French non-taboo: France has always been softer with Greece in terms of wordings. However, they eventually aligned with Germany. Now they are taking another step. French PM Manuel Valls may be raising a balloon of his own, perhaps  preceding something similar from president Hollande, saying that debt restructuring is “not taboo” while opening the doors for negotiations. He also mentioned the geopolitical risks involved. Greece is in a very strategic position.
  3. Italian values: Italian PM Matteo Renzi made it clear that the  Greferendum is about the euro or the drachma.  After the results, he took a different stance, talking about values for Europe rather than “technocratic parameters”, calling for a change and a return to values. While  we don’t have anything very specific here,  this shows there is more acknowledgement of the results and the change in Europe.
  4. Greek referendum: With 61% saying NO to the creditors’ proposals, Greek PM Alexis Tsipras has a strong mandate to pursue a change for Greece which includes the debt. The results had an impact on the aforementioned developments elsewhere. But that’s not everything. Following the vote, he also has the support of opposition parties that aligned behind him and got rid of the  Eurogroup’s excuse: his flamboyant finance minister Yanis Varoufakis is gone.
  5. IMF report: The  International Monetary Fund was generally in favor of restructuring Greece debt, but aligned itself with Germany throughout the negotiations. But on Thursday July 2nd, already before the Greferendum, we learned a lot more. Due to a leak, the IMF was forced to release its report on the Greek situation. Basically, the report says that Greece’s debt is unsustainable and that Europe would have to cough up tens of billions of euros in losses. In addition, the IMF said that Greece needs a third bailout and that the IMF will participate only if it includes a  restructuring of debt.  Merkel wants the IMF in, but the IMF is in only with debt relief. So, something has to give.

The Eurogroup  is meeting  with Tsakalatos representing Greece for the first time. This will be followed by a meeting of leaders, including Merkel in Tsipras.

The official stance was that Greece must bring new offers to the table and Greece agreed. This will surely consist of debt restructuring.  And will Germany accept it this time?

Greece has less, thus less to lose. Greece will pay less than it owes in any case. If it is done in an orderly fashion, the  write down could be lower.

What do you think?

More:  What Risk Resilience Implies For Grexit & The EUR – Deutsche Bank