The International Monetary Fund appears to be scaling back its contributions and exposure to Greece, Bloomberg reports (h/t @tomkeene).While the Fund contributed 27 per cent—or €30 billion ($39 billion) to the first bailout—it will only be responsible for 14 per cent—€18.2 billion ($23.8 billion)—of aid contributed as part of Greece’s second bailout package.
The IMF is set to formally approve €28 billion ($36.7 billion) for Greece, comprising both funds remaining from the last bailout and the new money stipulated as part of the second bailout.
This developement comes just as Greece completes a debt restructuring with its private creditors. This constituted the first default of an advanced economy in more than 60 years.
The IMF’s wariness in devoting more funds to the Greece rescue is an ominous sign that it sees the likelihood of a second Greek debt restructuring in the future. While increasing its net exposure, it is nonetheless doing so cautiously.
While the Bloomberg report does not specify whether or not the IMF had ever planned to contribute a larger sum to the bailout, it is nonetheless indicative of the fund’s reserve in taking on more exposure to Greece as opposed to, say, the rest of the euro area.
It also indicates that the fund’s contributors—the largest of which is the United States—are tiring with Europe’s resistance to bearing more of the burden for its sovereign debt crisis. Economist Nouriel Roubini wrote last week that the official sector will have to take almost the entirety of the hit in the case of a second Greek default. The stronger financial burden EU leaders have to bear, the more likely they will take quicker action to address Europe’s problems—lack of growth, trade imbalances, and absence of fiscal integration.
Meanwhile, newly issued Greek bonds are already trading at distressed levels—18.1 per cent for 11-year bonds and 13.4 per cent for 30-year bonds. The FT points out that this indicates persistent investor fear that Greece will see another debt restructuring before long.
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