Greek troubles resurface

Greece appears to be on the brink of default, again. Differences between the IMF and EU over possible Greek debt relief, could deny Athens the €7b it needs to stave off bankruptcy. The IMF’s latest report reiterates its view that Greece’s sovereign debt is unsustainable and needs creditors to take a haircut to restore solvency. But most EU members are reluctant to grant Greece debt forgiveness. This has resulted in a series of debt restructurings since 2009. In return Athens has had to tighten its belt, which has contributed to the 3.6% p.a. contraction of the economy since 2009.

Most of Europe is against Greek debt forgiveness and with the rise of eurosceptics and upcoming elections in France and Germany, politicians in creditor countries are unlikely to break rank. But if history is any guide, a solution to the current impasse will be reached at the 11th hour. The IMF cautioned as early as May 2016 that a moratorium on all Greek payments until 2040, maturity extensions, and an interest rate cap on loans would be needed to keep the Greek economy afloat. The cost of not doing so could be increasingly great, potentially beyond Europe, to the rest of the globe.