Cracks have become apparent in the proposed rescue plan for Greece, with the International Monetary Fund (IMF) splitting from other creditors by insisting on a write down of existing debt from previous rounds of the ongoing bailout of the beleaguered Mediterranean nation. This puts the IMF in direct conflict with other members of “The Institutions” which have negotiated a proposed rescue to keep Greece within the Eurozone and European Union.
A new rescue program for Greece “would have to meet our criteria,” a senior I.M.F. official told reporters on Tuesday, speaking on the condition of anonymity. “One of those criteria is debt sustainability.”
Debt relief has been a contentious issue in the negotiations over the Greek bailout.
Athens has pushed aggressively for creditors to write down the country’s debt, which now exceeds €300 billion. Without it, Prime Minister Alexis Tsipras has argued the debt will remain a heavy weight on Greece’s troubled economy.
But Germany and other countries, including the Netherlands and Finland, are loath to grant Greece easier terms, which are a tough sell to their own voters. German Chancellor Angela Merkel has ruled out a “classic haircut” on Greece’s debt.
While markets are eager to put the Greek drama in the rearview mirror, much still remains that could derail the current arrangement. If Greece was to be forced out of the EU and the combined currency it would be an unprecedented event whose ripples could have unexpected and far-reaching effects.
Currently there is much uncertainty regarding outstanding credit default swap instruments which, in conventional circumstances, would have been triggered by the already passed debt payments which have come due and gone unpaid. If a further “haircut” on the existing debt were to take place it will make the argument that the current situation is “under management” and will be resolved much harder to maintain.