Edward Hugh: Are the IMF and the EU at loggerheads over Greece?

As ne notes, the issue is who - apart of course from the long-suffering Greeks themselves - will pay the extra costs of the latest imbroglio.

It is now clear that Greece's economy has been going backwards over the last 6 months, and that it has once more fallen back into recession, a lot lower than expected in IMF forecasts, and - perhaps more importantly - well out of line with what is needed to maintain the 2022 debt sustainability targets on which continuing Fund support for Greek programmes depends.

IMF regulations prevent the Fund continuing to make tranche payments to countries where there is a foreseeable financing shortfall during in the coming twelve months. The worsening in the Greek economic outlook and the consequent reduction in the revenue outlook effectively guarantee this shortfall.

But the sort of debt write-off the IMF is demanding of its European partners goes much deeper than that. Future IMF participation in any new Greek programme after June is also in doubt because without additional pardoning the debt will not be on a sustainable trajectory in terms of the objectives set down and  agreed upon in November 2012.

The background to the current stand-off is to be found in the debt targets the Eurogroup agreed with the IMF in November 2012 and which effectively made the current programme possible. Given the latest recession these targets are clearly now not attainable. On the other hand Greece is totally bust, so the only way the negative effects of the negotiating gridlock can be paid for is by someone else "coughing up" (or rather "pardoning" debt). This someone will need to be the Euro partners (who else is there), and the longer the stand-off goes on the higher the cost. Naturally the other alternative would be allowing Grexit, but arguably the cost of Grexit would be much higher to the Euro partners, and by a large multiple.

read the whole article here: http://edwardhughtoo.blogspot.com.es/2015/05/are-imf-and-eu-at-loggerheads-over.html