Last Saturday, the EU finance ministers who gathered in Brussels in a last ditch effort to keep Greece in the eurozone were forced to confront a rather inconvenient truth. A bailout for Athens would likely cost nearly €80 billion, far more than the €53 billion figure mentioned in the draft proposal submitted by Alexis Tsipras two days earlier. The revised figure included a €25 billion provision for the recapitalization of Greece’s ailing banking sector. A day earlier, we warned that the banks would need at least €10 billion and likely more – “don’t tell Merkel”, we warned.
Judging by the date on a document that began to circulate once the finance ministers began to voice their consternation at the larger figure, Germany had already assessed the possibility that the cost of a potential third program for the Greeks was likely to climb prompting the finance ministry to prepare a document outlining two alternative options for Athens. One of these options was a 5-year Greek “time-out” from the eurozone. Initially (and by “initially” we mean for perhaps a few hours after the document was first distributed) the “time-out” idea was written off as simply another manifestation of Wolfgang Schaeuble’s frustration, but by Sunday it was clear that the idea was no laughing matter – indeed, had the bloc’s sleep deprived leaders not inked a ludicrous agreement at 6am in the morning, the “soft” Grexit scenario might already be well underway.
Now that reports from both the IMF and the European Commission on Greece’s debt sustainability are public, the world is well aware that no one, anywhere, truly believes the Greeks will ever be able to return to economic prosperity if they are forced to labor under their current debt load. In short: a “re-profiling” is necessary.
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