German Chancellor Angela Merkel and French President Nicolas Sarkozy have finally decided, after bilateral talks, to allow the IMF to join any bailout of Greece. Dow Jones Newswires reports “The support of France is crucial for Merkel, who has been lobbied for this solution for several days. Sarkozy has in the past opposed involving the IMF in bailing out a euro zone member.”
The trouble with the agreement is that it is no agreement at all. What the capital markets have to assess now is a promise that a structure to help Greece will be created. However, it will only be created if Greece needs one, and the government of the southern European nation has not be decisive in it comments about a need for capital. Over $50 billion of its sovereign debt is due between now and the end of the year. Greece’s debt is about 13% of GDP. Several economist say that there is no chance the nation can cut enough costs and raise enough tax revenue to avoid insolvency.
Greece has no credibility with the capital markets both because its estimates of its own financial position has been so badly off the mark and because labor unrest and strikes in the nation threatens to undermine tax revenue. One of the major reasons that EU nations have been leery about Greece is this instability.
That handshake between France and Germany is actually nearly meaningless. The IMF has not made it clear on what basis it would be involved in a Greek bailout or whether the Greek government would accept IMF conditions.
The EU summit has turned out to be nothing more for senior Greek government officials than a spring vacation.
Douglas A. McIntyre