IMF Leak Spurs Firestorm Over Debt Deal

Reuters was leaked a copy, Tuesday, of an IMF staff report dated July 14, that candidly admitted that the austerity deal struck over the weekend between the EU and Greece cannot work, and that Greece needs a huge debt write-down. The leaking of the report, the second such document produced by the IMF staff in the past two weeks, caused a firestorm of news coverage in Europe and the United States, and put the full genocidal nature of the deal in stark relief.

The IMF report began with a blunt assessment: “Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.” The staff document concluded that, under the terms of the weekend deal, Greek debt would soar to more than 200% of current GDP within two years.

The concluding paragraph of the IMF document spelled out three options:

“The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date—and what has been proposed by the ESM [European Stability Mechanism]. There are several options. If Europe prefers to again provide debt relief through maturity extension, there would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt, including new assistance.This reflects the basic premise that debt cannot be assumed to migrate back onto the balance sheet of the private sector at interest rates close to the current AAA rates before debt levels have been brought to much lower levels; borrowing at anything but AAA rates in the near term will bring about an unsustainable debt dynamic for the next several decades. Other options include explicit annual transfers to the Greek budget or deep upfront haircuts. The choice between the various options is for Greece and its European partners to decide.”

Under the IMF charter, the Fund cannot make loans that are judged “unsustainable.” In effect, the report, along with its public disclosure, was tantamount to an announcement by the IMF that they were pulling out of the Greek bailout. Germany had insisted that the IMF had to be a participant in any new debt agreement.

The media coverage of the IMF report and its implications was thunderous. The New York Times headlined a story by Josh Barro “The IMF Is Telling Europe the Euro Doesn’t Work.” The article made clear that the Greek crisis has brought the euro system to its “Emperor has no clothes” moment, “one that may finally force eurozone members to either move closer to fiscal union or break up.” Since fiscal union is out of the question, the Times openly admitted that the entire Maastricht System is going down.

Business Insider headlines screamed, “The IMF Has Triggered a ‘Political Earthquake’ in Greece’s Bailout Negotiations.” Zero Hedge announced, “IMF May Walk Away from Greek Bailout,” and Ambrose Evans-Pritchard, writing in the Daily Telegraph, wrote, “IMF Stuns Europe with Call for Massive Greek Debt Relief,” leading with, “The International Monetary Fund set off a political earthquake in Europe, warning that Greece may need a full moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression.”

A prominent U.S. intelligence official told EIR that he sees a danger of an outright military coup in Greece to overthrow the Tsipras government in what he called a “fascist turn in Europe.” It may be, the threat of such a coup and similar threats were behind the fact that, late Wednesday night, the Greek Parliament ratified the debt deal. The German Bundestag will convene on Friday, July 17, for a similar vote. Schäuble and an even more hardline faction in the CDU/CSU oppose the deal, preferring to kick Greece out of the euro altogether.

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