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Tuesday, November 13, 2012 11:55 AM


Laugh of the Day: IMF is Too Pessimistic; Public Feud Spat of the Day: Lagarde vs. Jean Claude Juncker


The eurozone finance ministers postponed agreement on the next Greek deal following a rare public feud between IMF chief Christine Lagarde and "Liar-in-Chief" Jean-Claude Juncker, chair of the eurogroup of finance ministers.

Recall that Juncker once publicly stated "When it Becomes Serious, You Have to Lie".

Today, please consider EU-IMF Feud Erupts Over Greek Debt

Christine Lagarde, the IMF chief, and Jean-Claude Juncker, chair of the eurogroup of finance ministers, publicly sparred over whether Greece must reduce its debt levels to 120 per cent of economic output by 2020, long viewed the target to get Athens back to a sustainable debt level.

An agreement between the IMF and eurozone governments is essential to releasing the bailout tranche since both creditors disburse financial assistance concurrently.

In a rare breach, Mr Juncker told a post-meeting press conference the target would be moved to 2022, prompting Ms Lagarde to insist the IMF was sticking to the original timeline. When Mr Juncker again insisted it would be moved – “I’m not joking,” he said – Ms Lagarde appeared exasperated, rolling her eyes and shaking her head.

“In our view, the appropriate timetable is 120 per cent by 2020,” Ms Lagarde said. “We clearly have different views.” Officials will meet again November 20 in an effort to reach agreement, Mr Juncker said.

The Lagarde-Juncker spat was a public manifestation of a fight that has been simmering behind closed doors for months. The IMF has insisted the overhauled bailout plan include a credible debt reduction proposal, which may force eurozone countries to accept losses on bailout loans.

But European Commission officials believe the IMF is being overly pessimistic, arguing Greece can grow faster economically and should be given more leeway to meet debt targets.

According to senior officials, the IMF believes that without any relief, Greek debt will stand at nearly 150 per cent of gross domestic product by 2020, while the European Commission believes it will be just over 140 per cent. Without agreement on the baseline, officials cannot come up with a debt relief plan, which will involve both eurozone governments and the ECB giving up cash they had originally been owed by Greece.
Moving Targets

Bear in mind the original target for Greece was 100% by 1014, then 120% by 2014, then 120% by 2018, then 120% by 2020, and now these clowns are wrangling whether it's 150% vs. 140% by 2020 with Juncker wanting to stretch the mess out to 2022.

I made up some of those dates and amounts because they have changed so many times no one could possibly keep track of them all.

The key point is not the exact dates or amounts, but rather the IMF was overly optimistic every step of the way, about Greece and about Europe in general.

For example, please consider my January 9, 2012 post Dimwit Comment of the Day: Christine Lagarde, IMF Director says "Europe May Avoid a Recession This Year".

If' that was not blatant optimism, what is? Europe is smack in the midst of a horrendous recession, and the IMF is looking for growth next year. It won't happen.

The irony is "Liar-in-Chief" Juncker argues the IMF is too pessimistic. Here's a clue for you: "Things are Serious".

Date is Irrelevant

It does not matter whether the date is 2016, 2020, or 2022. Greece is going to default anyway.

Thus, arguing about the date is like kids arguing who gets the bright red marble when there is no red marble at all. In this case, there is not even a bucket of marbles to choose from.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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