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The IMF being an international organization and having a facade of bureaucracy free of socio-political frills and pretensions, can extend some magnanimity and help Greece. Two years is not even a drop in the ocean of ..

21 Nov 2012

By Rakesh Neelakandan
The room is closed and jammed with water seeping in from all sides. Yet Greece has delivered, but the meeting attended by the wizards of the financial world, the IMF, European Central Bank and Eurozone Finance Ministers have all failed in clinching a deal that would see $44 billion delivered to the coffers of Greece so that the country, brimming with frustration at its seams, may at least be able to service its debt.

The issues are more or less technical in nature and what is technical is often not deemed political. We have forever reserved political things for politicians and technical things for bureaucrats. And it can be good at some exceptional circumstances...

"We are close to an agreement but technical verifications have to be undertaken, financial calculations have to be made and it's really for technical reasons that at this hour of the day it was not possible to do it in a proper way and so we are interrupting the meeting and reconvening next Monday," Eurogroup chairman Jean-Claude Juncker told reporters and was quoted by Reuters.

"There are no major political disagreements," he added.

While $44 billion-issue is for the short-term, the sustainable long term solution is to maintain Greek debt-to-GDP ratio at 120%, a figure that should be achieved by 2020. Next year, the figure is supposed to hit 189% as per sources. That is a debt reduction of 69% in a span of 7 years. Either the debt has to come down or GDP has to go up in drastic scale so that this outcome is achieved. The debt of Greece, however is going up and GDP is contracting for the fifth year. A solution is as elusive as a monkey.

Meanwhile, in a document that was circulated in the meeting of the lenders and was seen by Reuters, it was mentioned that the debt levels of Greece could not be brought down to 120% of GDP in 2020 unless euro zone member states write off a portion of loans to Greece.

But this could happen in 2022 without any politcal, economic ramifications for any country in the Eurozone, the document did say, though the news report did not mention how:

“The document did say Greek debt could fall to 120 percent of GDP two years later -- in 2022 -- without having to impose any losses on euro zone member states or forcing through a buy-back of Greek debt from private-sector bondholders.

But International Monetary Fund chief Christine Lagarde rejected such an extension at similar talks last week.”

The Euro Zone situation is such that Germany, or for that matter any other nation cannot take a hair cut, especially because of the political sensitivity of issue. The Germans love their money, just as anyone else and they will not let the tax money go down to some drain in Athens.

But the IMF being an international organization and having a facade of bureaucracy free of socio-political frills and pretensions, can extend some magnanimity and help Greece. Two years is not even a drop in the ocean of time. And one does not get a chance to save the world often; but this looks a cakewalk.

Reduce the interest rates on loans extended to Greece, call for a moratorium on interest rate payments and lengthen the maturities on loans: Greece would become a bit more stable and will do good.

As Juncker said: "Greece has delivered. Now it's up to us to deliver,"


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