The IMF’s Greek sunk cost

by Joseph Cotterill

Financial Times
December 16, 2011

Chart of the week — from Gabriel Sterne of Exotix:

Bit of a wonkish one, we know, but bear with us.

It more or less sums up this week’s IMF review of the Greek bailout — the fifth such review, but by far the most astonishing, and a document which every investor in the eurozone (or in fact, in any economy affected by IMF lending) should read.

The chart shows how the Fund’s projections of the Greek debt-to-GDP ratio have deteriorated over time, despite generous assumptions on Greece’s reforms… until we get to the massive change of course in the fifth review, that is.

The its latest review, IMF calls for the write-down of Greek bonds to be coerced, in order to involve as much debt as possible. It’s a move which will have repercussions far beyond Greece, and it will set the Fund apart from Greece’s other official creditors. (And as Felix writes, a 50 per cent write-down on the bonds is by now a floor, not a ceiling.)

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