Earlier today, we learned that, contrary to what Greek government officials had been implying for the better part of a week, Athens did not have enough money to make a €750 million payment to the IMF on Tuesday. Instead, Greece borrowed most of the money [9] (€650 million according to unnamed officials) from its IMF SDR reserves. This money must be paid back within 30 days. This effectively means that the IMF paid itself and it sets up a hilariously absurd scenario wherein assuming Greece manages to convince creditors to disburse a €7.2 billion tranche of aid later this month, the IMF will send money to Greece, who will send it right back to the IMF to replenish an IMF fund, which was drawn down by the IMF to pay itself back for money it loaned to Greece a long time ago. Put simply: Greece has taken circular funding schemes to a whole new level.
Meanwhile, the IMF is understandably fed up and according to El Mundo, the Fund will not participate in a new program for the Greeks, something which German FinMin Wolfgang Schaeuble indicated may be a dealbreaker when it comes to structuring another bailout for Athens.
The takeaway: it’s likely over. Greece lacks the cash to keep up the facade and the IMF lacks the political will to perpetuate the farce any further. This suggests that both Greece and the creditors formerly known as the "Troika" will need to resort to Plan B. There’s a problem with that however — namely that EU officials have gone out of their way to make it clear that there is no Plan B, because to admit that such a plan existed would be to admit that the euro is in fact dissoluble after all, something which is taboo in polite discussions among European politicians. Here is but one example, via Reuters [10]:
A top EU official urged Athens and its creditors to make progress in their talks on a cash-for-reform deal on Monday, warning there was no "Plan B" in the event of a Greek default.
"What we now need is real progress," Frans Timmermans, first vice president of the European Commission, told German newspaper Welt am Sonntag.
When asked whether there was a "Plan B" for the case of Athens defaulting, Timmermans replied: "No, there is no 'Plan B' for Greece."
That’s from Saturday. Here we are just three days later and as it turns out, Plan B does indeed exist and it is essentially a farewell package to the Greeks. here’s Bloomberg [11] with more:
Euro-area governments are considering putting together an aid package for Greece to cushion the country’s economy if it was forced out of the euro, according to two people familiar with the discussions.
The Greek government doesn’t expect to need that help. Prime Minister Alexis Tsipras says he’s not considering leaving the currency bloc and is focused on getting the aid he needs to avoid a default.
Even so, European officials are considering mechanisms to ring fence Greece both politically and economically in the event of a euro breakup, in order to shield the rest of the currency bloc from the fallout, one of the people said.
“There is always a plan B,” Filippo Taddei, an economic adviser to Italian Prime Minister Matteo Renzi, said in an interview in Rome on Tuesday, without referring to the aid package specifically. “But you have to ask yourself who has the ability to step in, in that event. And I think if you start making up a list you realize very quickly that that list is very short.”
While euro-area finance ministers welcomed the progress Greece has made toward qualifying for more financial aid at a meeting in Brussels on Monday, policy makers are still concerned Tsipras may not be prepared to swallow the concessions necessary for a disbursement.
So on Saturday Plan B was unthinkable but on Tuesday there’s “always a Plan B,” which reminds us of the time when Mario Draghi told Zero Hedge [12] that there’s no such thing as Plan B when it comes to insolvent periphery debtor nations getting cut off from ELA and crashing out of the currency bloc. As a reminder, here is what Draghi said: "If the Euro breaks down, and if a country leaves the Euro, it's not like a sliding door. It's a very important thing. It's a project in the European Union. That's why you have a very hard time asking people like me "what would happened if. No Plan B.”
Call it plan "B" or plan "C" or plan "contain this trainwreck so redenomination risk doesn't start creeping into the minds of Spanish and Italian depositors", but what it amounts to is a DIP loan and the very fact that it's being mentioned in the media likely means the plan has been hatched. The only remaining question is what the EU's farewell package to the Greeks will look like.
