Leaked Memo Reveals IMF (Still) Wants Out of Greece Bailout and Plots to Pressure Germany to Act

Posted on April 3, 2016 by Yves Smith

While a leaked IMF memo does not represent a crisis, it’s awfully reminiscent of the bad old days of 2007 and 2008, where the really important stuff happened on weekends.

Wikileaks obtained and published an official transcript of a conference call among Poul Thomsen, the program chief for Europe, Delia Velculescu, the head of the mission in Greece, and another official, Iva Petrova, that took place a mere two weeks ago. The conversation makes clear that the IMF team is frustrated by the fact that Brussels, meaning the European Commission, is sticking to fiscal surplus targets for Greece that the IMF regards as unrealistic, meaning there is no way Greece can achieve those goals. They discuss how the EC will instead want them to push Greece to make even deeper spending cuts, when Greece and the Trokia are still at loggerheads over issues like cutting Greek pensions (a third rail issue in Greece since the pension programs serve as a catchall social safety net).

Recall that the IMF had what appears to have been a staff revolt last year, via a leak of a debt sustainability memo for the upcoming, so called “third bailout” of Greece that made it crystal clear that Greece’s debt was not sustainable. “Sustainability” is supposed to be a bedrock requirement for IMF participation. Lagarde managed to tamp down the consternation over the leak and kept the IMF in the negotiations, while also insisting that Greece needs significant debt relief.

Yet here it is, nearly nine months later, and none of the fundamental elements of the impasse of last summer have changed. Greece is not willing to gut pensions and make other “structural” adjustments anywhere near as aggressive as the Troika wants, even the less unrealistic IMF. The IMF wants the other members of the Trokia to cut Greece’s debt levels. But Germany’s position is that debt cuts are off the table, since Greece has gotten enough debt relief for it to get by for a few years.

The governments of the Eurozone, contrary to the IMF, fantasize that they can make the numbers work by wringing even deeper spending reductions from Greece, even though Greece is proof that lowering fiscal spending, particularly in a weak economy, results in GDP falling so far that the debt to GDP ratios get worse, not better. And that’s before you get to the fact that reducing government services below a certain level results in failed states. Readers speculate that the reason that hasn’t already happened in Greece is the strength of family-based support systems.

in full: http://www.nakedcapitalism.com/2016/04/leaked-memo-reveals-imf-still-wants-out-of-greece-bailout.html