Executive Intelligence Review
Subscribe to EIR

PRESS RELEASE


Evidence of New IMF Letter: Greece and Next Puerto Rico Defaults Likely To Coincide

May 7, 2016 (EIRNS)—A letter from International Monetary Fund Managing Director Christine Lagarde, sent to European finance ministers and leaked to the Financial Times, offers evidence that Greece may add to Puerto Rico in a wave of large early-July debt defaults.

Lagarde’s letter has been reported today to be a demand that the Eurogroup of euro area finance ministers agree to some debt writedown ("debt restructuring") for Greece, or the IMF will withdraw from the third "Greek bailout" program forced on the country last year. These bailouts are simply bailouts for City of London and other large European banks, not for Greece, as exhaustive studies have proven. The country is driven deeper into economic austerity and impoverishment by each one.

The FT wrote May 7:

"The International Monetary Fund has told eurozone finance ministers they must immediately begin negotiations to grant debt relief for Greece despite German opposition, upending carefully orchestrated negotiations ahead of an emergency meeting on Monday.

"In a letter to all 19 ministers sent on Thursday night and obtained by the Financial Times, Christine Lagarde, the IMF chief, said stalemated talks with Athens to find EU3 billion in contingency budget cuts, which have gone on for a month, had become fruitless and that debt relief must be put on the table immediately, or risk losing IMF participation in the program."

Lagarde’s letter does not in fact say any of this, nor offer any support for this FT attempt to repair the IMF’s reputation in Greece, as a more relentless tightener than even German Finance Minister Wolfgang Schäuble, of the screws of austerity which have already ruined the country and cut down its population. Lagarde’s letter does charmingly say,

"a clarification is needed to clear unfounded allegations that the IMF is being inflexible, calling for unnecessary new fiscal [austerity] measures and—as a result—causing a delay in the negotiations and the disbursement of urgently needed funds."

More importantly for the bankrupt trans-Atlantic financial system, Lagarde’s letter makes clear that the "agreement" into which Greece’s government was strangled and choked last year, is absolutely unworkable. That agreement was for a "primary budget surplus" of 3.5% of GDP with which to pay debts, something neither Germany nor other major European countries have ever achieved. Lagarde’s letter says that even the IMF’s stringent new austerity demands could achieve, at most, a "primary surplus" of 1.5% of GDP. The difference is nearly €2.5 billion/year.

"Let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive," wrote Mme. Lagarde.

Thus both Greece and Puerto Rico have multibillion-dollar or -euro debt payments in early July on which they will probably simultaneously default, with Europe’s financial system already in crisis. And at the same time, the United Kingdom will have just had a referendum on leaving the European Union—one in which, thanks to Barack Obama’s backfiring intervention April 27, the "Leave" vote currently leads in polls.