Did The IMF Just Open Pandora's Box?

Tyler Durden's picture

By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.

The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).

And yet, today, in a stunning display of the schism within the Troika, it was the IMF itself which explicitly stated that Greece is no longer viable unless there is both additional funding provided to the country, which can only happen if there is another massive debt haircut.

This is what the IMF said:

Even with concessional financing through 2018, debt would remain very high for decades and highly vulnerable to shocks. Assuming official (concessional) financing through end–2018, the debt-to-GDP ratio is projected at about 150 percent in 2020, and close to 140 percent in 2022 (see Figure 4ii). Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30 percent of GDP would be required to meet the November 2012 debt targets. With debt remaining very high, any further deterioration in growth rates or in the mediumterm primary surplus relative to the revised baseline scenario discussed here would result in significant increases in debt and gross financing needs (see robustness tests in the next section below). This points to the high vulnerability of the debt dynamics.

And the kicker:

  • "these new financing needs render the debt dynamics unsustainable."

Bingo, because that is, in a nutshell, precisely what Tsipras and Varoufakis have been claiming since day one. As expected, a Greek government spokesman promptly said that the IMF report is in line with the Greek government's view on debt.

What makes the IMF report even more odd, is not so much its content and position which have been largely known for quite some time now, but its timing: just three days before the Sunday referendum, Tsipras now has prima facie evidence to wave in front of the Greek people and say "see, we were right all along."

It is exactly the case that only a "No" vote at this point would allow Greece to continue a negotiation which has already seen one of the three Troika members side with the Greek position. Should Greece vote "Yes", it will make any future negotiation with the Troika impossible, and while the country will get a few months respite the resultant bank run after the bank reopen with the ECB's blessing will mean that all Greece will do is buy itself a few months time. Only this time all the debt will still be due.

And, should hey vote "Yes", this time the Greeks will only have themselves to blame for all the future pain, pain which will continue well after the mid-point of this century.

But ignoring Greece for a minute, what the IMF's "debt sustainability analysis" has just done is open the door for every single other comparably insolvent peripheral European nation to knock on Christine Lagarde's door and politely ask: "Mme Lagarde, if Greece is unsustainable, then why aren't we?"

Because as the chart below shows, the debt situations of all the other peripheral European nations is just as "unsustainable."


In this way, while the outcome of the Greek situation is currently unknown, it has also become moot, because at this very moment, politicians from Spain's Podemos to Italy's Five Star movement are drafting memos demanding that the IMF evaluate their own debt sustainability. Or rather unsustainability.

Perhaps more importantly, these same politicians will now dangle the prospect of an IMF admission that they, too, deserve a haircut as the catalyst to be elected into power. After all who can refuse that their life would be made so much better if only the country was permitted to selectively "default" on €50, €100, €200 billion or more in debt? Just elect this politician, or that, and watch your living standard soar...

And since the IMF has no choice but to agree that just like Greece all these nations are accordingly drowning in debt, Syriza's sacrifice (assuming Tsipras fails to outnegotiate Merkel) will not have been in vain. In fact, it may very well end up that today the IMF opened up the Pandora's box, one which, more than a Grexit, will destroy Merkel's "united Europe" legacy.

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kowalli's picture

Nothing to see here

AlaricBalth's picture

The domino theory of the fiat money age.

James_Cole's picture

Looks like US is using IMF to mess around a bit with German (and russian) ambitions.

i_call_you_my_base's picture

Was thinking the same. The US is trying to foul things up for Europe here.

Pool Shark's picture



Just like the 'Dread Pirate Roberts,' Central Banksters must leave no survivors. Otherwise word gets out that they've gone soft, and then it's nothing but 'work, work, work...'


eatthebanksters's picture

Isn't that domino theory thingcalled a Ponzi Scheme?

disabledvet's picture

Smith and Wesson sure looks good here.

"You can keep the Ouzo." And the "Ginsu 2" apparently.

The IMF is just a repository for US dollar funding.

If the entire Continent of Europe cannot cough up a single US dollar to pay for "Greece" then that is the ECB's problem...not the IMF's problem.

Those dollar sure look pretty expensive right now...on that I would agree.

Tall Tom's picture

Can I draft a memo to the IMF requesting if the United States can pay its debts?


Do you think that I'd be taken seriously?


Our arrears are worse than Greece's ever were. The Debt is unpayable.


This is laughable.

JohninMK's picture

Get back in the queue, the UK is ahead alphabetically, if not in scale of debt but we are no sluggard.

Rubbish's picture

Dear Mother Fucker

I pick up pennies and surely the debt you have straddled my family with is Unsustainable.


An American


Gold Bitchez.......GOLD

weburke's picture

I predict 3 countries out of the eu, and the greek guy gets big billing with the pope talking us into the nwo.

greenskeeper carl's picture

Hahaha I fucking called this shit this morning as soon as I saw that first article. We don't need no water let the motherfucker burn... The house of cards is getting flimsy.

One of these is not like the others..'s picture

+1 for the firewater burn reference.


Jadr's picture

Csn we have this tool's account banned again.  Every thred he links to his irrelevant blogp which is highly formulaic in its writing. boring and has nothing to do with the contact of the ZH post or evey anything generally covered on ZH.  Get back on your bended knee and praty that you learn how to write.

Keyser's picture

When is a default not a default? When your creditors would implode from their derivatives books going BOOM all at one time... The EU can say whatever they want, but they aren't going to get any more blood from Greece... Referendum or not... 

Arnold's picture

Still they are fishing for a Renminbi or Ruble or Riyal infusion, to provide enough liquidity to really blow up the situation.

boogerbently's picture

Contagion from NOT throwing Greece under the bus.

The rest want THEIR "write downs" now.

ebworthen's picture

Of course, the E.U. and the Euro are done.

They were from the beginning if you think about it.

"Ms. Lagarde!  You must leave the tanning booth!  Spain and Italy are defaulting!"

Four chan's picture

loans have been made

bonuses paid

the end beautiful friend 

TheReplacement's picture

Perhaps it is a house of cards if you are European.  Perhaps if you are one of the insiders this is all just part of the game.  Fleece a different continent on a rotating schedule...  Con on country or coalition into an expensive war on a rotating schedule...  Cull the herd on a rotating schedule.... rinse and repeat.

Hell, it is almost like farmville or some such thing - till, fertilize, plant, water, harvest, till under...   Ever wonder what the take home really is?  They control everything.  What are they getting out of this at this juncture?  What is really left to take?  They can wipe out countries and peoples at will.  They can frame up individuals on a whim.  They can move wealth and power to and fro and back again invisibly.  They can get Americans to celebrate July 4th as Independence Day from the South.  Are they that pathetic that this doesn't bore them like a kid gets bored stepping on ants?

disabledvet's picture

Someone changed my picture to Darth Vader...

new game's picture

the only hope imfo is go gray. nuetral, minimal and mind no ones' busuiness.

the mutha fucks can all go fuck themselves. 1 for 1, eye for eye; tic toc mutha fuks...

MeetTozter's picture

Maybe the time is drawing close for another Greek Cluster of Colonels to perform an act of economic stabilization?  SharkNATO?

disabledvet's picture

"Closing the Athens Stock Exchange" sure sounds like a failure to pay to me.

I'm not an expert on "Greece" but that sure is an awful lot of islands.

Closing the Banks makes no sense either...

Bush Baby's picture

We didn't the nickname "The Great Satan" for nothing


New_Meat's picture

"We didn't the nickname ..."

Who is this "we" that you are referencing, child?

- Ned

{yes, that is my reddie}

TheReplacement's picture

You speaka da engrish.  You is one-a-da "we".

Haus-Targaryen's picture


This pits the IMF against Rainbowland. Their actions here imply they want the system to blow up (free shit for Greece (which is affordable) also means free shit for Italy and Spain (which isn't affordable)) however, Greece is now in formal default, and ClG could write her letter and deliver it tomorrow, blowing up Greece beyond recognition tomorrow.  

The EU is pretty steadfast in what they desire -- Greece to bend over and keep the system going.  

Greece is pretty obviously willing to play kamikaze economics.  

What I don't get is the IMF.  Some of their actions imply they want the system to explode, while their other actions imply they don't.  

Given Greece and the EU kinda off-set each other right now -- the player at this point to watch is the IMF.

ECB can wreck havoc with their collateral requirements, but apart from that this pig is stuffed until 6 PM CST on Sunday.  

Crtrvlt's picture

2 theories


1) the IMF (US) realizes Greece can't fail for strategic geographic reasons

2) they are trying to save face for Merkel


or of course none of the above 


Bankster Kibble's picture

1) the IMF (US) realizes Greece can't fail for strategic geographic reasons

    1.1) Greece must stay inside the EU because it is easier to block Russian gas lines that way, and the EU is too divided to decide how to pay for a gas line through Greece by itself




weburke's picture

china gets a military base, and russia gets its pipe, and greece is a bric not a eu

Dapper Dan's picture

My theory....


"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title."

iamme's picture

And all this, in the basement, with the hungry tigers, under the crypt, with no lights, in the locked drawer.


Lol :-)


new game's picture

debt , baby, debt, with the implied threat of violence. thanks jonnie, now move to the head of the class, ha, lol...

rise up serfs

disabledvet's picture

Greek "euro-debt" WAS paying 18% just last week.

"Ruble MONEY" pays about 14%...give or take.

Brazilian REALES look like the best deal on actual MONEY right now would appear...there just aren't many of those either though.

two hoots's picture

This debt juggernaut is the planet’s most serious threat.  World leaders must get a grip on all lending institutions that can place irresponsible/shortsighted/corrupt countries in Greece situations.

We know the cause, symptoms and prognosis but fail to find a cure other than continuous talk, talk and more talk and more debt and we even know why we do this. 

The US, G7, G20, UN someone, somewhere must take lead and cure the world of this bankers disease.   The bankers caused it; keep them away from the patient.

I totally get the naivity of my comment,  but this fixing it with what caused it is ...well.

OpenThePodBayDoorHAL's picture

I guess I don't get why Greek debt is suddenly all due and payable...whereas US and Chinese debt (and everyone else's, Ukraine etc) that is equally unpayable...never will be?

Umh's picture

It is not all due and payable right now. The Greeks can't even make the scheduled payments.

TheFutureReset's picture

Greece doesn't have an FOMC at their disposal to keep their rates at 0%. The US would blowup long before they hit the levels Greece has to pay. 

Cloud9.5's picture

The printing press and who controls it makes all the difference.  The U.S. Will never go broke.  It may however blow up its currency.

Zwelgje's picture

When you have blown up your currency you're as good as broke.

Cloud9.5's picture

The printing press and who controls it makes all the difference.  The U.S. Will never go broke.  It may however blow up its currency.

RichardParker's picture

Mark my words, you will never hear Victoria Nuland say, "Fuck the Bankers."

James_Cole's picture

Greece is now in formal default

Are they though?

What I don't get is the IMF.  Some of their actions imply they want the system to explode, while their other actions imply they don't. 

Considering Germany and France have competing interests to the US this would make sense.

All I know is watching this has been a lot more interesting than last seasons game of thrones.

jmcwala's picture

This is the Euro version of Game of Thrones unfolding

Professor Fate's picture

Lagarde has her tits (what there are of them) in a wringer now and clearly needs to be taught a Keynesian lesson.  I say... UNLEASH THE KRUGMAN! 

Fate the Magnificent
"Push the Button, Max"