Two on Greece, the Eurozone, and the IMF
What we don't know might hurt us.
I’ve run across a couple of articles on the Greek credit crisis, the Eurozone, and the IMF that I wanted to bring to your attention. First, from Andrew Lilico at The Telegraph on what happens when Greece defaults:
It is when, not if. Financial markets merely aren’t sure whether it’ll be tomorrow, a month’s time, a year’s time, or two years’ time (it won’t be longer than that). Given that the ECB has played the “final card” it employed to force a bailout upon the Irish – threatening to bankrupt the country’s banking sector – presumably we will now see either another Greek bailout or default within days.
and continues with a list of a dozen or so likely outcomes including a domino effect on Ireland and Portugal and insolvency for the European Central Bank. Not a pretty list. Hat tip: Megan McArdle
The other piece is a post from former chief economist at the IMF Simon Johnson on why the French want the next managing director of the IMF to be French so badly:
If Ms. Lagarde becomes managing director she can directly influence the terms of IMF involvement – and based on her negotiating position to date within the eurozone, we can presume she will lean towards more money, easier terms, and above all no losses for the banks that made foolish loans.
Increasingly it looks like the eurozone leadership, under French guidance, will go for the Full Bailout option, in which all Greek debt is bought up by the IMF, by the European Central Bank, and by other eurozone entities. This debt will be held to maturity – and any creditor who did not yet sell will be made whole (those who already sold at a loss are out of luck).
Unfortunately, the IMF is extremely Euro-centric and there appears to be an unwritten rule that a European will always head the IMF. Under present circumstances that’s likely to mean that American, Japanese, and poorer countries’ money will be used to paper over the incompetence of European banks.