Greece: IMF wants euro-zone governments to take losses

The IMF sees a financing hole of 10.9 billion euros for Greece: €4.4 billion this year and €6.5 in the next one. And, the IMF wants euro-zone governments to take “substantial losses” on loans made to Greece, and not for the first time. 

The news comes at a bad timing for Angela Merkel: she faces re-election on September 22nd. Up to now, German officials have denied a financing gap and made efforts not to rock the boat. This publication further increases the tensions within the troika.

So far, all the euro-zone bailout money came in the form of loans – not grants. After private bondholders already took a haircut through the Private Sector Involvement, most of the debt is held with the IMF, the euro-zone governments and the ECB.

The magic number for the debt-to-GDP ratio has been 120.5% by 2020. The IMF sees the current path leading to 124%. And, it wants the ratio to fall to 110% in 2021. The Fund also reminded everybody of Greece’s depression: an unemployment rate of 27%, youth unemployment of 57% and a drop of 25% in GDP since 2007.

German elections

This report might provide some back wind to the Alternative für Deutschland party. The party has a “single needle in its compass”: to get Germany out of the euro-zone, riding on popular anti-euro sentiment. The party might snatch some voters from Merkel’s center-right CDU, but has not been seen as a big threat so far.

So far, Germany hasn’t really paid anything, and the debt crisis actually helped the country pay lower yields in bond markets and enjoy a weaker euro for its exports. Even if German taxpayers do find themselves paying off Greek debt, the benefits of staying in the euro-zone are probably much higher for the zone’s locomotive: it couldn’t have such a strong economy without the euro: German exports would not have been so competitive.

While many Germans acknowledge this, and the country might eventually accept losses, nobody will say it out loud before the elections.