As Greece pleads for a short-term bailout extension to avert a midnight default, a U.S. analyst says Germany must urge the IMF to offer some sort of face-saving measure for Greece or risk further economic fallout.
WASHINGTON D.C., UNITED STATES (JUNE 29, 2015) (REUTERS) – With Greece poised to default on a loan to the IMF on Tuesday (June 30), a U.S. analyst said the focus should be on Germany, Greece’s biggest creditor.
German Chancellor Angela Merkel has the best chance of preventing a default, according to Robert Shapiro, Chairman Of Sonecon Economic Advisory Firm, and a former under-secretary of commerce for the Clinton administration.
Many see Greece defaulting on its loan as a worst-case scenario that could introduce new uncertainty into the shaky European markets.
Shapiro believes IMF Director Christine Lagarde is facing “enormous pressure to pull back from the brink.”
“There is enormous pressure from business, there is enormous pressure from the banking community. There is enormous political pressure. The real problem is Germany. If Germany put pressure on the IMF, I think Christine Lagarde would go along,” Shapiro said. He added that a best case scenario would involve some debt forgiveness and would allow the IMF to come up with “a face-saving way of saying, we do not demand the payment of your debt today.”
Merkel gave a cool response to talk of an 11th hour compromise, suggesting that there may be no time left for a deal.
Shapiro accused Merkel of playing a “dangerous game of chicken” with Greece’s economy.
The German leader is in a political corner, acknowledged Shapiro because German taxpayers are resistant to the idea of spending more to bail out Greece.
“It would be very hard for her to sell another bailout but the alternative is for her to risk a crisis that could define her legacy,” Shapiro said.
If Greece goes into default, it will be the first time in the history of the IMF that an advanced economy has defaulted on a loan from the world’s financial backstop, putting Athens, which has seen its economy contract by more than 25 percent since 2009, in the same bracket as Zimbabwe, Sudan and Cuba.