It was only a matter of time after all. Europe’s most indebted government is back at it, complaining about bailout conditions and fighting for its next tranche of bailout funds. This time though, there’s the added weight of a million new Syrian refugees in the past 15 months, almost all of whom are clamoring for financial help from a bankrupt state.
The back-and-forth tone is already familiar by now, with both sides blaming the other but confidently expressing that “progress has been made” and that a resolution is in sight. There is one exception to the norm though, and that is the International Monetary Fund (IMF), which put up the hardest fight in the last round of standoffs over the third Greek bailout since 2010. Apparently, Prime Minister Alexis Tsipras’s government is blaming the IMF for the standoff, accusing it of lacking seriousness in the negotiation process.
We know from earlier reports in January that the IMF is seriously considering skipping on the current bailout, as IMF leaders do not think that Greece can ever shake itself free of debt without debt relief. The IMF has a point since the bailout itself continues to push Greece’s debt-to-GDP ratio ever higher, now at a record 179% with no signs of abating. Other eurozone institutions are loathe to give the Greek government direct debt relief as that would directly impair balance sheets by canceling the cash value of debt held. IMF chief Christine Lagarde has said that the fund likely will make its decision on participating in the second quarter, incidentally around the same time that Great Britain will be voting on its own exit from the European Union.
The standard interpretation of what happens from here is that the two sides work it out again, as always. However, a combination of a Brexit from the EU, the IMF snubbing the bailout and an ever worsening refugee problem that has increased the Greek population by almost 10% in one year might just be enough to end the bailout and break the eurozone apart. The latest Brexit polls out of the United Kingdom have the sides in a statistical tie.
Meanwhile, the supply of euros in Greece continues to fall, now an incredible 40% below its 2009 peak. A money supply nearly cut in half can only happen in a state that does not have the power to print its own money and is under capital controls, as is the case with Greece. With these numbers, it is no mystery as to why Greek gross domestic product has contracted at nearly the same rate as the money supply since 2008, and why unemployment in the country is still 24%, minimum wage there being essentially unchanged since 2007 with 40% less money circulating.
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