IMF Declares War On Germany: In "Secret" Report Lagarde Says Greece Will Need Massive Debt Relief

Tyler Durden's picture

Update: Europe now looks to be in damage control mode. Here's Reuters:

  • EU SOURCE SAYS EURO ZONE LEADERS KNEW OF LATEST IMF DEBT ANALYSIS FOR GREECE BEOFRE AGREEING ON THIRD BAILOUT TERMS

A divide between the IMF and Europe (read: Germany), regarding writedowns on Greece’s debt to the EU has been brewing for quite some time and recently returned to the international spotlight when, a few months back, the Fund indicated debt relief was a precondition for its participation in any further aid for Athens.

More recently, the IMF released a report on Greece’s debt sustainability just prior to the referendum. The timing appeared to be strategic and may have helped secure the "no" vote for Tsipras.

Unfortunately, the IMF didn’t appear to anticipate the PM’s complete capitulation and now, the subject of debt relief has again been put off, this time until Greece officially passes the new "deal" through parliament and legislates its terms.

Today, another "secret" IMF document on the sustainability of Greece’s debt burden has surfaced and not surprisingly, the Fund is once again pounding the table on a haircut. One is certainly left to wonder if the US (and its veto power) are pulling the strings behind the scenes and orchestrating "leaks" at opportune times. Here’s more from Reuters:

Greece will need debt relief far beyond what euro zone partners have been prepared to consider due to the devastation of its economy and banks in the last two weeks, a confidential study by the International Monetary Fund seen by Reuters shows.

 

The updated debt sustainability analysis was sent to euro zone governments late on Monday, hours after Athens and its 18 partners agreed in principle to open negotiations on a third bailout programme of up to 86 billion euros in return for tougher austerity measures and structural reforms.

 

"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," the IMF said, referring to the European Stability Mechanism bailout fund.

 

European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a very dramatic maturity extension, or else make explicit annual fiscal transfers to the Greek budget or accept "deep upfront haircuts" on their loans to Athens, the report said.

 

 

The updated debt sustainability analysis (DSA) was sent to euro zone governments late on Monday, hours after Athens and its 18 partners agreed in principle to open negotiations on a third bailout program of up to 86 billion euros in return for tougher austerity measures and structural reforms.


"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," the IMF said, referring to the European Stability Mechanism bailout fund.


European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a very dramatic maturity extension, or else make explicit annual fiscal transfers to the Greek budget or accept "deep upfront haircuts" on their loans to Athens, the report said.


It was leaked as German Finance Minister Wolfgang Schaeuble disclosed that some members of the Berlin government thought Greece would have been better off taking "time-out" from the euro zone rather than receiving another giant bailout.


The IMF study said the closure of Greek banks and imposition of capital controls on June 29 was "extracting a heavy toll on the banking system and the economy, leading to a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA".


The latest IMF study said Greek debt would now peak at close to 200 percent of economic output in the next two years, compared to a previously forecast high of 177 percent.


Even by 2022, the debt would stand at 170 percent of gross domestic product, compared to an estimate of 142 percent issued just two weeks ago. Gross financing needs would rise to above the 15 percent of GDP threshold deemed safe and continue rising in the long term, the updated IMF study said.


Moreover, the latest projections "remain subject to considerable downside risk", meaning that euro zone countries might have to provide even more exceptional financing.


The IMF study also appeared to challenge the assumption by some European officials that Greece will be able to meet some of its financing needs from the markets in 2018.

 

"Borrowing at anything but AAA rates in the near term will bring about an unsustainable debt dynamic for the next several decades," it said.

In other words, the IMF is now openly at war with Germany (and its sound money compatriots like Finland) over debt forgiveness, which futher underscores the split in Europe between the German bloc and the those who favored leniency for Greece, and, by extension, a relaxation of the doctrine of strict fiscal discipline that has dominated EU politics (in word if certainly not in deed in the periphery) since the onset of the European debt crisis.

Of course any debt haircut for Greece will only serve to embolden other periphery debtor states, especially those where Syriza sympathizers enjoy growing support ahead of elections. In short, if parties like Podemos in Spain perceive that Germany has blinked on debt relief they too will push for writedowns, something we outlined in detail after the last IMF "leak" in "Did IMF Just Open Pandora's Box." 

*  *  *

Summing up the US/IMF message to Germany:

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kowalli's picture

bb germany, you are usa bitch.

Rubicon's picture

Oh to be a German tax payer.

Haus-Targaryen's picture

I am.  Fucking sucks.  I try to get the biggest refund I can, it all goes into AG and AU, and hopefully I can expedite this thing by a second or two. 

PartysOver's picture

What will it take for Germany to tell Obama to fark himself.  Germans have been wussified.

NoDebt's picture

OK, so let me get this straight.... 4-5 years ago when Greece owed about 100 billion Euros the answer was to give them more money to keep paying their debts.  Now that Greece owes 300 billion Euros it's time for debt relief.  Down to what?  100 billion Euros?

Europe: beating expectations ALL the way down.

smithcreek's picture

All this shit just to avoid the inevitable.  Assholes who knew they could never repay, borrowed from assholes who knew they would never be repaid and now instead of letting the assholes sort the shit out between themselves a whole new group of assholes thinks they have another solution.  Anything to keep the status quo alive.

Escapeclaws's picture

Good cop, bad cop.

LaGarce: "Brioche anyone?"

(From a cartoon by Shanahan in New Yorker.)

Oh regional Indian's picture

Lagaard, the silver dagger comes bearing the NUMBer 7

Her burn is from that orb in heaven

She's as dull as it is bright

so it's all gonna be?

All right ;-)

https://aadivaahan.wordpress.com/2015/07/14/sometimes-humor-is-the-only-...

SWRichmond's picture

All of this "news" is simply designed to prevent the mundanes from having any idea what is really going on.  It is spreading misinformation to make our eyes glaze over and not care.

Do the oligarchs want us to be slaves?  YES

Are they willing to do absolutely anything to make it so, and hold onto power and wealth?  YES

Do they control the MSM?  YES

So spread a few contradicting stories, and stand back and watch their media spread and debate them in front of the public.

 

Oh regional Indian's picture

Question: Do the slaves want to continue being slaves?

Unfortunate majority answer : YES!

froze25's picture

I do not wish to be a slave for the record.

Tarzan's picture

Did anyone else read the whole Reuters story?

Nice hack job ZEROHEDGE!

 


It was leaked as German Finance Minister Wolfgang Schaeuble disclosed that some members of the Berlin government thought Greece would have been better off taking "time-out" from the euro zone rather than receiving another giant bailout.


(anything missing here Tyler?)


The IMF study said the closure of Greek banks and imposition of capital controls on June 29 was "extracting a heavy toll on the banking system and the economy, leading to a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA"


I would think that you would want your readers to know the EU finance ministers have had this report since Saturday!  You quoted part of it why remove it from the story?


It was leaked as German Finance Minister Wolfgang Schaeuble disclosed that some members of the Berlin government thought Greece would have been better off taking "time-out" from the euro zone rather than receiving another giant bailout.

IMF managing-director Christine Lagarde attended weekend talks among euro zone finance ministers and government leaders that agreed on a roadmap for a new bailout. An EU source said the new debt sustainability figures were given to euro zone finance ministers on Saturday and were known by the leaders before they concluded Monday's deal with Athens.

The IMF study said the closure of Greek banks and imposition of capital controls on June 29 was "extracting a heavy toll on the banking system and the economy, leading to a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA".

Ploutos74's picture

The majority actually said NO but noone noticed

Oh regional Indian's picture

What good if they said NO and continued to act slavishly?

J S Bach's picture

"IMF Declares War On Germany:"

Sounds eerily similar to an older headline from 1933 - "Judea Declares War On Germany".

Same old adversaries in the IMF, I guess.

angel_of_joy's picture

IMF = US (financial arm of State Department)

Considering the above equation, I would say that Schaulbe is on his way out. If Merkel will insist in defending him, she'll follow as soon as it will be convenient...

illyia's picture

That is freaky... because it is eeirily true...

Good Lord. Makes a person wonder where Wolfowitz was intended to fit in all this. Eh?

Just as well he was ousted - for all those other reasons, too...

nixy's picture

They aren't (wern't) concered whether or not there was to be any repayment ...... they get their fees up front.

MsCreant's picture

This is the real problem with the whole system, isn't it? Subprime loans, bundled MBS, GS cooking the books. The incentives for the people selling it, is to have product to sell. No incentive at all to be honest and make reasonably sure the deal is sustainable.

Link this stuff to performance and see how quick all this so called "liquidity" dries up. No one would sell shit.

chunga's picture

This CDS crap has gotta be the worst. We were joking the other day about IMF pretending there's been no default. It seems like 10,000 unpunished scandals ago but remember fraudclosure?

One of the squares of homeowner litigation was that CDS paid off giant chunks of mortgages. They'd be getting froeclosed often by servicers (opertaing ultra vires as agent for undisclosed principal like MBS tranche xyz) and demand that in discovery. Servicers would motion for protective order and courts would grant ALL the time. Courts would declare homeowners "are not a party" to any of that so buzz off even if they discovered that themselves and presented in court. The fraud is so insidious it's simply too big to believe.

At the end of the day, AIG writing all that CDS paper they could never underwrite got bailed out at par! The problem for AIG's Greenberg was that Goldman's Blankfein tossed one right in his fanny and stole the bailout loot!

IMF is STILL pretending there's been no default LOL! 

illyia's picture

A comment well worth wading through. Well (if still confusingly) put.

More exact than my favorite "Whattamess!"

chunga's picture

SOmetimes I get a little too excited  ..lol. Sorry for bad typies.

lasvegaspersona's picture

Decisions are easy to make when you are making them about Other People's Money.

'Sure we'll loan you 100 billion...lets see my cut is.....hold on the calculators overheating..'

philipat's picture
 

"A divide between the IMF and Europe (read: Germany)"

Should actually read "A divide between the IMF (Read Washington) etc...........

Wasington is concerned about Greece falling into the open arms of China and Russia and especially concerned about the impact on NATO and so, eventually, its ability to push Europe into a US-instigated war with Russia. This war would be fought on European soil and before that time would destroy the European economy with sanctions that do not impact The US.

So the fact that Germany is standing up to "The IMF", whilst on the surface perplexing, might result in the positive outcome of Europe developing a Foreign Policy independent of Washington and designed in the best interests of Europe?

The Greek "Solution" makes absolutely no finacial sense and, sooner or later, Greece will fail (May as well do it now, do an "Iceland", completely default and introduce the new Drachma) but my point is that there are much larger Geopolitical issues in play here also.

kraschenbern's picture

And behind all of the above:  the big and M sided game of "Whose currency do you trust?"  All fiat currencies are IOUs, so ultimately the question of trust is answered by who delivers the most value to the most users.  Being worked out now.

Lea's picture

I see some problems with your theory, philipat.

"Wasington is concerned about Greece falling into the open arms of China and Russia and especially concerned about the impact on NATO and so, eventually, its ability to push Europe into a US-instigated war with Russia. This war would be fought on European soil and before that time would destroy the European economy with sanctions that do not impact The US."

While Whashington is certainly worried about Greece getting too friendly with Russia, there is absolutely no way a Nato-led war against Russia wouldn't spill over to USA ground. We're talking nukes here, and Russia can bomb the USA.
Nato's first member is the USA. Do you think that the Russians don't know that? You think they wouldn't strike back at the USA? Sorry to break the news, but it's the first thing they would do, buddy.
We Europeans DO NOT, I repeat DO NOT want war with Russia. They've done nothing to us. The only ones who hate Russia are the USA. We, Europeans, will NEVER wage war against Russia, and I'm also talking for our so-called EU "elites". They are vassals and lackeys, yes, but they are not mad. Unlike the USA, we have suffered wars on our territory, and never want to see that again.
That's why, BTW, the EU/Nato militaries are a joke and won't get any better any time soon.
So, if the USA wants war with Russia, it will have to go it alone. That much I can guarantee.

In fact, Germany may be rebelling against the USA precisely because of its belllicose rhetorics and the sanctions, which are hurting the German economy to the sole benefit of the USA.

chunga's picture

^ makes sense to me

edit - thinnk about how times have changed. My amateur, armchair guess is Germany would be fine with grexit, but it got shoved down their throats. Then they threw a tantrum and made the deal moar inflexible than it was. What caused Merkel to break down in tears while talking to oBama/Sarkozy? Then you've got the NSA spying and the deal with the gold. Germany sends it to USSA for safekeeping against the Russians...then can't get it back lol.

German intel probably knows exactly what happened to MH117.

Bush Baby's picture

No one is going to drop Nukes.

Handful of Dust's picture

<< Greece Will Need Massive Debt Relief >>

 

... and my neighbor Jamal told me long ago, "size matters."

Ghordius's picture

1+, Lea:

"We Europeans DO NOT, I repeat DO NOT want war with Russia. They've done nothing to us. The only ones who hate Russia are the USA. We, Europeans, will NEVER wage war against Russia, and I'm also talking for our so-called EU "elites". They are vassals and lackeys, yes, but they are not mad. Unlike the USA, we have suffered wars on our territory, and never want to see that again. 

That's why, BTW, the EU/Nato militaries are a joke and won't get any better any time soon. 
So, if the USA wants war with Russia, it will have to go it alone. That much I can guarantee.

In fact, Germany may be rebelling against the USA precisely because of its belllicose rhetorics and the sanctions, which are hurting the German economy to the sole benefit of the USA."

I would not have written it this way, and there are a few wrinkles in it, but it is this way. the most bellicose european at this moment is possibly our ZH collegue "Haus-Targaryen", but he talks this way because he is possibly from Texas or somewhere around it

we can't stand the bellicose rethorics, and prefer to look the other way whenever someone breaks that silly embargo, as long as it's not too much "in your face"

btw, the eurozone alone spends twice as much as Russia in armaments, the whole EU three times that, and our total of uniformed soldiers is around 1.5 million, for criminy

there is no such thing as a "rebellion against the USA", though. it's done more... quietly. like by dragging feet, letting that talk fly over heads, etc. etc. France, for example, even left NATO for quite a time

that does not mean that we like bellicose rethoric from Russia, or that we aren't concerned with territories changing sovereigntly, mind you. in fact, it pisses us mightily off, too

Lea, there is a huge difference between a vassal and a lackey, btw. Prince Philip of the UK is the first vassal of the Queen, for example, a status perfectly compatible with him being her husband, and the same relation exist between Russia and some other countries, like Belarus

if we were lackeys instead of "vassals", Washington would get more demands through, woulnd't it? Just think military spending, where the US MIC is so often frustrated how few new toys we want to buy. For so many here reading or watching "Game of Thrones", I would expect a better understanding of the words "vassals" and "lackeys". When you say "vassal", you talk about a military alliance and imply quite a lot of... honour, up to the point that it could be considered a... compliment

philipat's picture

Ghordius, We ACTUALLY agree at the end of the day. It's actually Common sense?

angel_of_joy's picture

Splitting hairs on words significance is fun, but the reality is that the entire EU banking system is bankrupt, and it was kept alive so far only through increasing debt and FED money (swap lines). You don't have the money to back-up your nice rhetoric... There is a master above Germany, and that master is starting to get pissed at you !

detached.amusement's picture

"Washington would get more demands through, woulnd't it?"

Ghordy, the problem is, this dynamic in your mind is missing a head & shoulders, which is why your analyses always fall well short of the mark.

chunga's picture

How funny would it be IMF/DC/Nudelman got a big surprise for example, Germany leaves NATO! They've always wanted oil/gas from Russia and without the west pushing them around, they could pipe it right in. PRESTO!

Escapeclaws's picture

What's become of Secretariat of State Nuland? Haven't seen her for a while.

chunga's picture

SHe's making cookies in case Greece needs to be Ukrained.

Escapeclaws's picture

I bet she just slams the oven door just to make those in the living room think the cookies were not made by Sara Lee. You can never trust those faux culs.

RaceToTheBottom's picture

They better make those cookies from Colorado or Washington.

laomei's picture

greece never got any money out of this bullshit. that "bailout" was given to the german banks to keep them solvent and shift the debts from private to public and on the taxpayer tab.  that's ALL it did, nothing more, nothing less.  they were fucked by banks, and they rightly were about to tell the banks to fuck themselves.  if the banks had to eat that loss, they would go under and that would shatter the german economy.  

Sam Clemons's picture

Lagarde said before this was a debt jubilee year.

The money changers (the real ones running stuff - not private smaller banks) know that every so often in order to preserve their usury system, they must forgive all debt in order to restart their usury system from scratch.  Otherwise some other far less profitable system and potentially UNCONTROLLABLE SYSTEM comes with violence.  

It's mathematically impossible to ever pay back debt with interest.  They know that.

Vullsain's picture

You got most of it right, then you fucked up at the end. If the banks went bankrupt then the major wealthy investors should have taken a well deserved haircut. Germany could have recapitilized the banks under more sound and diligent management. The average German depositor could have been OK. The German economy would have managed and ultimatley prospered even more, without the socialism for the cronies. The bailout let Greece continue with their culture of tax evasion, inefficiencies and free money mentality, the bailouts and agreements allowed the wealthy Greeks to expatriate their money and allowed hedge funds to continue feeding the game, knowing they would continue to be given exit opportunities. Unfortunatley the average Greek like the average citizen everywhere had his head up his ass and was unable or unwilling to see what ZH has been reporting for YEARS.                                         "Fuck All You Keynesian Clowns"

JLee2027's picture

Yes they kicked the can. When the collapse hits, it will hardly matter if you cannot repay 100 billion or 100 trillion. You'll still be toast.

OK, so let me get this straight.... 4-5 years ago when Greece owed about 100 billion Euros the answer was to give them more money to keep paying their debts.  Now that Greece owes 300 billion Euros it's time for debt relief.  Down to what?  100 billion Euros?

Klemens's picture

The International Money Changers have to keep Greece till September 2015 alive.

33 Things You Need to Know About September 2015 and the Monumental Event They Foretell

http://beforeitsnews.com/prophecy/2015/07/33-things-you-need-to-know-abo...