IMF Quits Greek Debt Talks; No Deal In Sight Due To Continuing Disagreements

This doesn't bode well for a successful resolution to the Greek debt crisis: all the negotiators have flown home in a huff because no one is taking them seriously. The IMF has gone back to Washington, the Greeks back to Athens and the Europeans are left hanging around Brussels on their own. It is, of course, somewhat difficult to negotiate an agreement when no one is still there to do any negotiating. There's a deeper background to this as well, which is that this is exactly why the IMF was strong armed into taking part in the second bailout in the first place. To provide tough negotiators who were not going to be swayed by European Union politics into fudging a bad deal.

Here's the basic news:

The European Union has warned Greece in the clearest language to date that its patience is exhausted and the country will be abandoned to its fate unless it accepts creditor demands in short order.

Donald Tusk, the EU’s president, said the radical-Left Syriza government must stop spinning out the negotiations and face hard choices before Greece spirals irrevocably into default.

And both the IMF and the Greeks have gone home:

The International Monetary Fund dramatically raised the stakes in Greece's stalled debt talks on Thursday, announcing that its delegation had left negotiations in Brussels and flown home because of major differences with Athens.

The surprise IMF move came as the European Union told Greek Prime Minister Alexis Tsipras to stop gambling with his cash-strapped country's future and take the crucial decisions needed to avert a devastating default.

A Greek source told Reuters that the entire Greek delegation that had been negotiating a cash-for-reform deal had also left for home on Thursday, citing continuing disagreements.

An example of the sticking points:

The IMF said that the Greek pension system is "unsustainable", with state spending on pensions accounting for 10pc of GDP, compared with 2.5pc across the EU as a whole.
The fund recommended that Greek politicians broaden out their country's tax base, and simplify an overly complicated VAT structure. Mr Rice said: "We are well away from an agreement."

Mr Rice said that the IMF never leaves the negotiating table, but that its technical team had left Brussels, where the talks were being held, and returned to Washington.

So, in terms of a quick deal and an end to the uncertainty we're obviously further away than we were. However, it's worth looking at the underlying dynamic here. The most important thing to understand is the split in the European Union side, the Eurogroup. I'll agree that I'm not unbiased in my readings of European politics but this is my reading of it.

There's essentially two sides here. Being both extreme and colloquial about it the one says that anything that preserves the euro, keeps us all on track to that ever greater European union, is just fine. If Greece needs more money, well, we can just use this as an impetus towards that fiscal union that is desired anyway. Then on the other side there's those who really don't think that such greater union is quite the point. Or even, that if it is, such greater union requires the chastisement of those who have breached the extant rules. No one will actually say such things, but it's fair enough to pencil sketch those two groups as being so.

And the point of bringing in the IMF in the first place was to make sure that that first group, the spend anything to save the euro crowd, were not able to fudge the deal. The second group wanted the IMF around as it's not so amenable to anything for that preservation. The deal, if deal there's going to be, has to be a proper one economically, not just politically.

My own judgement of this is that Greece would already have a deal, largely along the lines that it wants (ie, lower primary surplus, more investment funds, less privatisation, no pensions reform), if it had been negotiating purely with the eurozone. And that's why the IMF was brought in, to be the barrier to such a political deal. And, obviously, we seem to be watching the IMF being exactly that barrier as it was intended to be.