Here's what Greece and its creditors will have to take into account now that Athens has missed its IMF payment.
Listening to EU officials and eurozone ministers these last few days, you’d think Greece was just about to get the prize it had long coveted — debt relief — when it stopped negotiating with its creditors, deemed their proposals “unacceptable blackmail,” and announced a referendum on their plan.
From European Commission President Jean-Claude Juncker to French Finance Minister Michel Sapin, there was a common lament: Too bad the Greeks walked away just before we made it clear that debt relief was just around the corner…
Now we have turned a different corner. Greece is giving markets an idea of what the beginning of a messy debt relief might look like, after failing to pay some €1.6 billion it owed the International Monetary Fund.
Beyond that, the question now is not whether there will be debt relief for Greece. There will. Everyone agrees that Athens will not pay back in full the debt it nominally owes: €313 billion or 175 percent of the country’s GDP, the highest ratio among developed economies and twice the eurozone average.
The question is what form debt relief will take: radical and hostile, such as a unilateral and universal default; or negotiated with some or all of the creditors. The latter case includes many possible options, all showing that the politics of debt relief are as complex as its technical, legal and financial aspects.
And then there’s the “when” — Greece’s Syriza government wanted to make a debt deal part of an agreement with creditors. [...] The creditors, in turn, have long held the position that commitment to reform should come first.
Whatever the timeframe, the concept of debt relief must accommodate two political realities. The first is that it has to be arranged so that creditors can pretend they don’t suffer losses (and there are actually some options where they might not lose anything). That’s notably a touchy subject in Germany.
The second political reality is that the carrot of debt relief has been mostly a tool for Greece’s creditors to force Athens to reform.
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