The Greek government owes more than it can afford to pay, now or in the near future, at market interest rates. There are two options: reduce the payments through some form of restructuring, or move the debt into the hands of people who are willing to charge below market rates for the foreseeable future.
Do not underestimate the smugness of the euro zone in its failure to prepare for any kind of sovereign default.
In this decision, the International Monetary Fund has relatively little to say. This is really a political decision to be made by the European Union, with discrete backing from the U.S. and China.
While European Union leaders are surely tired of Greek politicians at this point, they also fear the implications for other euro zone countries if Greece says it can’t pay or won’t pay. And the damage would not be limited to Spain.
Do not underestimate the smugness with which the euro zone has completely and utterly failed to prepare for any kind of sovereign default. The lack of loss-absorbing capital in major European banks is a first order scandal that could bring down governments.
Fortunately for the undeserving European policy elite, the I.M.F. has plenty of money it can lend at low rates and the Europeans have plenty of votes at the I.M.F.
The I.M.F. has plenty of money to lend, and Europe’s leaders have plenty of votes at the I.M.F.
The I.M.F. can also access considerably more funding as needed, with the agreement of the United States, which really does not want another short-term shock to the world economy. And funding is available from China and other emerging market countries with large stockpiles of foreign exchange reserves.
China has every interest in making sure that the euro survives and prospers as a major reserve currency, and that over a longer period of time the U.S. dollar will decline as the primary place in which to hold public and primary rainy day funds.
The I.M.F. will do as it is told by its major shareholders: help refinance Greece, and effectively protect creditors and euro zone politicians to the fullest extent possible.
Join Room for Debate on Facebook and follow updates on twitter.com/roomfordebate.
Do not underestimate the smugness of the euro zone in its failure to prepare for any kind of sovereign default.
In this decision, the International Monetary Fund has relatively little to say. This is really a political decision to be made by the European Union, with discrete backing from the U.S. and China.
While European Union leaders are surely tired of Greek politicians at this point, they also fear the implications for other euro zone countries if Greece says it can’t pay or won’t pay. And the damage would not be limited to Spain.
Do not underestimate the smugness with which the euro zone has completely and utterly failed to prepare for any kind of sovereign default. The lack of loss-absorbing capital in major European banks is a first order scandal that could bring down governments.
Fortunately for the undeserving European policy elite, the I.M.F. has plenty of money it can lend at low rates and the Europeans have plenty of votes at the I.M.F.
The I.M.F. has plenty of money to lend, and Europe’s leaders have plenty of votes at the I.M.F.
The I.M.F. can also access considerably more funding as needed, with the agreement of the United States, which really does not want another short-term shock to the world economy. And funding is available from China and other emerging market countries with large stockpiles of foreign exchange reserves.
China has every interest in making sure that the euro survives and prospers as a major reserve currency, and that over a longer period of time the U.S. dollar will decline as the primary place in which to hold public and primary rainy day funds.
The I.M.F. will do as it is told by its major shareholders: help refinance Greece, and effectively protect creditors and euro zone politicians to the fullest extent possible.
Join Room for Debate on Facebook and follow updates on twitter.com/roomfordebate.
