From a distance, it may seem as if the situation in Greece has been “solved”. While the threat of an imminent default has been reduced, risks remain. The Wall Street Journal talked with representatives from the IMF (excerpts below - 02/22/2012):
International Monetary Fund officials said that while a new financing agreement for Greece reached earlier this week can set the ailing economy’s debt on a path toward healthy levels, perils in the days ahead could capsize the program.
“All the cards have been stacked up for it to succeed,” said a senior IMF official in a telephone briefing. “Of course there are huge implementation risks over the next few days. We have to be realistic. It’s not yet in the bank,” he said.
A second official on the call said that program is “a strong package and major step forward” that buys Greece considerable breathing room to implement a raft of major economic reforms to make the country competitive again within the euro zone. But, there’s little wiggle space for Greece.
Think about the “wiggle space” concept; it implies near-perfect implementation is needed for the program to remain aloft. As noted by Reuters below, the odds of Greece delivering on its promises are not good if you use history as a guide (02/19/2012):
Greece has a long history of promising reforms to its creditors and not delivering, and this time looks set to be no different.
“They probably won’t be able to implement everything and (April) elections make it more difficult,” ALCO pollster Costas Panagopoulos said.
International lenders, the IMF and the EU, blame the failure of the rescue plan so far on slow implementation of structural reforms, such as the opening up of markets and professions. There is widespread scepticism because of a long history of missed targets.
“Past history does not give us a lot of hope,” said Diego Iscaro of IHS Global Insight.
“Every time Greece has to receive a tranche of the money we’re going to have the same problem. If they keep missing targets, sooner or later they won’t get the money. There is a chance this is just delaying the inevitable.”
Even the quick-to-bail-anyone-out IMF has become reluctant to pump more money into Greece, which is reflected in the “excessive risk” statement below via the Wall Street Journal (02/22/2012):
The first IMF official said that while the board will ultimately decide how much the fund contributes to the new Greek program, it likely won’t loan more than EUR30 billion at its peak, roughly the same amount it planned under its old lending program.
“The fund credit to Greece would remain broadly unchanged … versus the peak credit that we would have achieved under the current stand-by arrangement,” he said. Still, “that would imply still the largest exposure ever by the fund to any country by many metrics.”
“We have to make sure that we are even-handed across countries, and also that we avoid excessive risk-taking,” the official said.
If the IMF felt confident in the sustainability of Greek debt, we would not see a statement with a reference to “excessive risk-taking”. Nobody, even the creators of the most recent bailout plan, believes everything has been “solved” in Greece.