Saturday, July 04, 2015

A Deus-ex-Machina Scenario

A curious dissonance exists between the statements of Greek PM Alexis Tsipras that a deal is coming very soon after the referendum, on the one hand, and various statements by Merkel and Schäuble hinting that Germany will not be quick to return to negotiations.
According to a recent Huffington Post story:
Tsipras told private TV station Antenna Thursday that he sees a deal with creditors emerging "within 48 hours" after the referendum. 
How can a deal happen in 48 hours? Particularly if the Germans need a Bundestag vote? Either someone is lying, or there's a different path to debt relief, a deus-ex-machina ending of some kind, here, that no one's talking about.

The deus-ex-machina path may involve raising just enough money to pay down the €1.6 billion IMF arrears (the payment Greece missed on June 30), after which IMF would become a major player again in the Greek debt drama.

How does Greece raise €1.6 billion on short notice? There has been talk of obtaining funds from the European Stability Mechanism. (See this Bloomberg story.) But it's also possible the U.S., Russia, or China could suddenly come to Greece's aid, to the tune of €1.6 billion. (U.S. is not likely to sit still, of course, for an intervention by Russia or China.) In the scheme of things, €1.6 billion is not such a stupendous sum.

The ability to pay IMF back (erasing the June 30 arrears) would mean Greece could pursue financing through IMF, on a separate track from its ECB negotiations. IMF could supply the needed "missing round" of funding for Greece to make ends meet through 2018 (estimated at €36 billion). If it did so, IMF could insist on super-senior rights, rendering ECB loans subordinate. (Any future defaults would affect ECB, first, rather than IMF.) Such an arrangement would be highly embarrassing to the Germans and would make Tsipras look like a genius.

Could such an outcome really happen? It could, if the U.S. has anything to say about it. And the U.S., potentially, could have a lot to say: It still largely controls the IMF.

So far, the U.S. has seen fit to stand aside in the Greece debt drama. But if the ECB is so paralyzed by greed and acrimony that it can't find a way to keep Greece (a NATO country) from going bankrupt, it's not hard to believe U.S. could suddenly decide to intervene in some way.

Weirder things have been known to happen.