IMF plans to dump Greece

SUBHEAD: Der Spiegel reports bombshell that International Monetary Fund will no longer fund Greek recovery. By Raul Ilagi Meijer on 22 July 2012 for the Automatic Earth- ( Image above: IMF President Christine Lagarde looking worried after "bombshell". From (

German magazine Der Spiegel dropped a bombshell this morning in an article which is for now available only in German. My German is quite decent. Here's the original and my translation:

IWF will Griechenland-Hilfen stoppen IMF wants to stop Greek help

Griechenland könnte schon im September pleitegehen. Der Internationale Währungsfonds hat nach Informationen des SPIEGEL der Brüsseler EU-Spitze signalisiert, dass er sich nicht an weiteren Hilfen für das Land beteiligen werde.

Greece could go bankrupt as early as September. Spiegel has obtained information that the IMF told the Brussels leadership it would not make more money available for help to Greece. [..]

Derzeit untersucht die Troika aus EU-Kommission, Europäischer Zentralbank (EZB) und Internationalem Währungsfonds (IWF), wie weit das Land seinen Reformverpflichtungen nachkommt. So viel steht schon jetzt fest: Die Regierung in Athen kann den Schuldenstand des Landes nicht wie vereinbart bis zum Jahr 2020 auf rund 120 Prozent der Jahreswirtschaftsleistung drücken.

At the moment the EC, ECB and IMF troika is investigating to what extent the country lives up to its reform obligations. This much is already certain: the government in Athens will not be able to bring down its debt load to about 120% of GDP by 2020.

Erhält das Land mehr Zeit, seine Ziele zu erfüllen, würde das nach Schätzungen der Troika zusätzliche Hilfen zwischen zehn und 50 Milliarden Euro erfordern. Viele Regierungen der Euro-Zone sind jedoch nicht mehr bereit, neue Griechenland-Lasten zu schultern. Zudem haben Länder wie die Niederlande und Finnland ihre Hilfen daran gekoppelt, dass sich der IWF beteiligt.

The troika estimates that giving Greece more time to achieve its goals would cost an additional €10 billion-€50 billion. Many eurozone governments, however, are no longer prepared to shoulder new Greek burdens. Moreover, countries like Holland and Finland have made their help contingent on IMF participation.

Das Risiko eines Austritts Griechenlands aus der Währungsunion wird mittlerweile in den Ländern der Euro-Zone für beherrschbar gehalten. Um die Ansteckungsgefahr für andere Länder zu begrenzen, wollen die Regierungen den Start des neuen Rettungsschirms ESM abwarten. Dieser kann jedoch nicht vor dem Urteil des Bundesverfassungsgerichts am 12. September in Kraft treten.

Meanwhile, a Greek departure from the eurozone is seen as manageable in eurozone countries. In order to limit the risk of contagion, governments want to wait for the new ESM emergency fund to start. Which can't happen before the German constitutional court delivers its verdict on September 12.

Um Griechenland über den Monat August zu helfen, könnte ein letztes Mal die EZB einspringen. Eigentlich müsste Athen am 20. August 3,8 Milliarden Euro an die Zentralbank zurückzahlen. Die Lösung könnte eine Art Kreislaufgeschäft sein, bei dem die Euro-Notenbanken selbst die Kreditablösung übernehmen: Der griechische Staat könnte neue kurzfristige Staatsanleihen herausgeben - sogenannte T-Bills - und sie an die griechischen Banken verkaufen. Diese wiederum reichen die Papiere bei der griechischen Notenbank ein - als Sicherheit für neue Nothilfen.

To help Greece survive the month of August, the ECB could jump in one last time. Athens must pay back €3.8 billion by August 20. The solution could be a kind of circular deal, in which eurozone central banks take over credit payments. Greece could issue new short-term bonds and sell them to Greek banks. They could then submit them to the Greek central bank as collateral for new emergency help.

It’ll be a lot of fun seeing the IMF, and European leaders, try to deny the article and its implications. From what I understand, they want to wait until the ESM is effective, and then dump Greece. The article may trump any such intentions. Some things only work in secret, and once Pandora's box is open, they no longer do.

I still think it would be curious that the ESM, supposedly good for €700 billion or so (if not more), would be used to "save" Spain and perhaps Italy, but not Greece. For countries like Portugal and Ireland, dumping Greece would mean they need to get very nervous about being the next one thrown under the wheels and off the back end of the wagon.

The message might become that any and all reform and austerity measures demanded must be adhered to very strictly or else. Politicians in these other "borderline" countries might go along with it all, but will the people? Do the Irish really enjoy the idea of being strangled into submission? And will Spain really be "saved" once real debt numbers are known?

It seems far more likely that getting rid of Greece will be merely the first step in dissolving the entire eurozone. The rest of the dominoes can then fall in rapid succession.

PS: For more entertainment, here's a link to a letter by Peter Doyle, former division chief in the IMF's European Department, who, upon resigning, shared a few of his thoughts on the fund: "After twenty years of service, I am ashamed to have had any association with the Fund at all..."

Doyle accuses the IMF of a terrible mishandling of the European crisis, something he says is due to the fact that information received well in advance about the European crisis was internally suppressed. He places responsibility for the suffering of the Greek people squarely on the shoulders of the IMF and the "fundamental illegitimacy" of the selection process inherent in its hierarchical structure, which has led to the appointments of people such as Dominique Strauss-Kahn and Christine Lagarde.

UPDATE 1: Dutch political parties have demanded their government clarify the Spiegel article. They suggest parliament break off their holiday recess and convene next week to discuss the matter at hand. The government wants to wait for a troika report.

UPDATE 2: Bloomberg reports that German Economy Minister and Vice Chancellor Philipp Roesler says he's "very skeptical" that European leaders will be able to rescue Greece and the prospect of the country’s exit from the euro had "lost its terror."

Roesler says "Greece is unlikely to be able to meet its obligations under a euro-area bailout program as its international creditors hold talks this week in Athens. Should that be the case, the country won’t receive more bailout payments".

"What’s emerging is that Greece will probably not be able to fulfill its conditions. What is clear: if Greece doesn’t fulfill those conditions, then there can be no more payments."

IB Editor's UPDATE 3: From (

The IMF has said that it will meet with Greek officials later this week to get the country’s economic program “back on track.”

This statement comes in the wake of Sunday’s bombshell Der Spiegel article alleging that the IMF will not dole out any more aid to Greece.

Here’s the entire statement, which was released just moments ago:

The IMF is supporting Greece in overcoming its economic difficulties. An IMF mission will start discussions with the country’s authorities on July 24 on how to bring Greece’s economic program, which is supported by IMF financial assistance, back on track.


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