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The head of the Eurogroup Jean-Claude Juncker and the managing director of the IMF, Christine Lagarde, had a public disagreement over Greece’s targets.

This disagreement could now turn into a bit more than that. There are some statements in that direction.

The IMF wants another round of debt restructuring for Greece in order to meet the goal of 120% debt to GDP ratio by 2020.

However, after the big haircut for private bondholders in March, aka the Private Sector Involvement (PSI), most of Greece’s debt is now in the hands of the Official Sector: the IMF, the European Central Bank and the euro-zone governments, via the EFSF.

So, the IMF actually wants euro-zone governments, including Germany of course, to accept losses on Greek loans.

This is very problematic in political terms, to say the least. So, the euro-zone leaders suggested extending Greece’s target by 2 years, to 2022, in addition to extending the target for reaching a primary surplus from 2014 to 2016.

The public disagreement in the recent Eurogroup meeting, which Lagarde attended, could now turn into a “Grexit” by the IMF.

Here are some worrying comments in recent days:

  • German government spokesman  Steffen Seibert said his country wanted the IMF to remain in Greece’s troika. Why would he say that? Probably it isn’t so obvious.
  • EU Commissioner Olli Rehn said that the EU part in the Greek bailout isn’t possible without the IMF funds. Why would he say that? Is the IMF considering an exit?

Back in March, the IMF hinted it could leave Greece if targets aren’t fulfilled – it seemed like means of pressure on Greece. The current row is with the EU partners.

Greece avoided an immediate default thanks to a short term bond auction. So, it will able to pay its bonds on November 16th. However, the next tranche of aid to Greece is still in the air. The next Eurogroup meeting is scheduled for November 20th. Will the sides reach a compromise?

Further reading:  A Grexit or a haircut – Germany’s choice