Regular readers know that until such time as Greece's debt is dramatically lowered by being written off it will never be on a path to debt sustainability. Currently, under creditor enforced austerity policies, Greece is heading into a worsening depression.
If the eurozone ministers and IMF stick to the debt sustainability requirement, Greece will not receive more bailout money (technically, it is the creditors that receive the bailout money).
This is a great outcome. This outcome forces both the public and private sector holders of Greek sovereign and private debt to write-down this debt to a level that Greece and its citizens can afford to service.
By relieving the Greek economy of the excess debt, capital that is currently being used for debt service can be used to purchase goods and services. This ends the depression in Greece and restores growth to the economy.
In effect, by insisting that Greece be on a path to debt sustainability, the eurozone ministers and IMF are insisting that Greece abandon the Japanese Model for handling a bank solvency led financial crisis and adopt the Swedish Model.
Out is protecting bank book capital levels and banker bonuses. In is protecting the real economy and Greek society.
Greece cannot receive its much-delayed and critically-needed bailout tranche of €31.5bn (£25bn) unless its national debt level is deemed to be on a path of eventual sustainability, but Athens will not be allowed to default on €5bn of debt that needs to be redeemed next week, a senior eurozone official said on Friday....
The long-awaited report on Greece from the troika of IMF, ECB, and European Commission officials is expected at the weekend before Monday's meeting.
It will report on Athens' compliance with the bailout terms and also include a "debt sustainability analysis" which is the main sticking point and the focus of the row between the IMF and the Europeans.
At IMF insistence, the bailout terms stipulate that Greek national debt may be no higher than 120% of gross domestic product by 2020 to qualify for the verdict of being sustainable. The troika report is certain to state that this goal is unachievable....Nor will it ever be achievable given the current austerity policies and deepening depression.
That said, I am sure it is possible to create a spreadsheet that will show the debt could be repaid. However, the assumptions underlying the spreadsheet would have no basis in reality.
Despite IMF pressure on the eurozone and the ECB to write down their loans to Greece and take losses, the official said the ECB "won't tolerate any haircuts on its Greek bond holdings." The German government takes a similar stance.The German government's stance reflects its desire to protect its banks from recognizing the consequences of their poor judgement when it came to extending credit to Greece and its citizens.
Since the German government is willing to protect the banks from the consequences of Greece, it must be assumed by Spain, Italy and France that the German government intends that they too go through the Greek experience.
Why would any government put its economy and citizenry through the Greek experience?