Greece’s decision not to pay the International Monetary Fund the €300m it owes the creditor today and to “bundle” all of the €1.5bn due in June to the end of the month means that the long-running saga over Greece is going to rumble on for a while. But a denouement is on the horizon.
The laborious negotiations cannot continue ad nauseam for the simple reason that with the payments due to the IMF, and almost €7bn due to the European Central Bank in July and August, Greece will run out of money. The banking system is already haemorrhaging cash, requiring the ECB to keep upping the liquidity it makes available to member country banking systems that are under pressure. This process is reaching the end of the road too. In a nutshell, the Greek government is going to have to default on someone: its creditors, or its people and its own party. Put another way, if its creditors don’t blink—and the latest proposals they “offered” to Greece constitute a sort of ultimatum—Prime Minister Tsipras will be forced to concede. At the margin, this seems the most likely outcome—at least for the moment.
Among many outstanding issues, one of the most important is Greece’s debt burden. Tsipras told Europe’s top officials and political leaders this week that their proposals were not acceptable and would merely aggravate Greece’s predicament. He countered with Syriza’s own 47-page document including a radical idea for restructuring Greece’s debt.
Remember that this was part of Syriza’s election manifesto early this year, though Europe has persistently ruled this out. Syriza wants the €27bn it owes the ECB to be refinanced (more cheaply) by the European Stability Mechanism; it wants nearly half the €20bn it owes the IMF to be paid off by the profits made by the ECB on its loans to Greece and half to be financed by new borrowing; it wants much of the €53bn it owes bilaterally to European countries to be restructured into a “perpetual” bond; and it proposes that half the €144bn owed to the ESM’s predecessor, the European Financial Stability Facility be essentially half-written off, and half restructured into a longer-term loan with double the existing interest rate of 2.5 per cent. It…