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Grexodus: One Minute to Midnight


The bad news: The latest meeting of Euro Finance Ministers broke up on Monday without any agreement between Greece and “the Institutions” on the release of the final tranche of 7.2 billion euros[1].

The good news: No one had expected there to be an agreement, so it really wasn’t much of a surprise (yes, this counts as good news).

The good news: Yesterday, Greece announced that it had made an early repayment of 750 million euros owed to the IMF[2].

The bad news: The Greeks had to access an emergency IMF reserve account for 650 million of those euros, which means the IMF mostly paid itself: the Greeks could only scrape together 100 million.

From now on, it’s all bad news:


  • The IMF’s Christine Lagarde has apparently had it with the whole messy situation and announced it wants no part of a third bailout[3]. This declaration wouldn’t affect the approximately 3.5 billion euros that the IMF is already committed to in the third tranche of the second bailout (which is still being withheld), but the message it sends sounds an awful lot like a death knell. Of the three organizations composing the Troika – excuse me, the “Institutions” – the IMF was by far the most favorable towards the Greek position: urging the Eurogroup and ECB to be “lenient” towards reasonable Greek requests and expressing itself open to the possibility of a restructuring of a debt that now stands around 180% of GDP. Apparently, Ms. Lagarde didn’t appreciate being repaid with her own money.If the IMF won’t participate, all of the burden will then fall on the Eurogroup member states. These member states are already very vocally disgruntled with Greece’s government and in no mood to now take on a greater burden, even if that burden is expected to be less than the previous bailouts. That is likely to drive them to exact even greater concessions in order to sell it to their domestic audiences.


  • Equally disconcerting, German Finance Minister Wolfgang Schäuble expressed support for a Greek referendum on any new bailout terms[4]. This is an amazing volte face for Mr. Schäuble: remember that the last time a Greek Prime Minister suggested a popular referendum, he was forced to resign. It very much sounds like the old tactic of “giving someone enough rope to hang themselves with.” For the Germans, it’s heads I win, tails you lose. If the Greek people accept the new conditions (whatever they are) in order to avoid default and probable Euro exit, then Syriza can have its feet held to the fire on implementation of reforms. But if they reject the terms, the Germans and the Eurogroup can wash their hands of the subsequent Grexodus and but the onus of the consequences squarely on the stubbornness of the Greeks and their leaders. Either way, there will be no more talk of “democratic illegitimacy” or “German diktats”.Given that the terms of a third bailout are likely to be quite onerous, touching as they will privatization, public sector lay-offs, reduction in public sector services, and pensions; and given the strong aversion of the Greeks to even more austerity measures; a referendum seems likely to have a high probability of being rejected. The Germans are perfectly aware of this with the implication that Wolfgang Schäuble and Angela Merkel no longer care.

Greece still has commitments in May with another 1.4 billion euros in 13 week Treasury Bills maturing on the 15th of May[5]. And June has another big pay-out to the IMF of 1.5 billion euros. Yet Greece is out of money. Given the choice of whom to default on, Greece would probably prefer to short the ECB on the T-bills than the IMF. Missing a payment to the ECB would not automatically trigger a default by the Big Three rating agencies since debt held by the ECB is considered official sector. This could perhaps give Greece some leeway: always assuming that Mario Draghi was in a conciliatory mood. If he was not, he could cut-of the Emergency Liquidity Assistance funds and immediately crash the Greek financial system.


It seems highly likely that this time next month we won’t be discussing Grexodus anymore, but instead containment. And it seems that the Germans, Eurogroup, ECB and IMF are all okay with that.

Sources and Notes

[1] Lorne Cook, “Greece makes progress with creditors but deal still elusive,” The Seattle Times, 11 May 2015

[2] Marcus Walker and Stelios Bouras, “Greece Completes Latest IMF Loan Repayment,” The Wall Street Journal, 12 May 2015

[3] Mike Bird, “Report: The IMF won’t join a third bailout for Greece,” Business Insider, 12 May 2015

[4] Nils Pratley, “Schäuble’s subplot – a Grexit, it seems, no longer worries Germany,” The Guardian, 11 May 2015

[5] Hellenic Public Debt Management Agency

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