The German Finance Minister is quoted by Reuters as saying there will be no new haircut for Greece, but there will need to be a new aid programme.
Whether it’s via new money (third aid programme) which simply increases the debt load on Greece or a restructuring/haircut which reduces the burden of existing debt, the key is that policy makers will have to reveal their preferences once the German election is out of the way in September.
The comment from the German FinMin suggests we are in store for more can-kicking on Greece, which instead of an OSI could see Greek debt restructured with longer maturities and further reductions in interest rates. The problem is that the IMF might be unwilling to agree to a plan that does not involve an OSI.
We are likely to get a showdown between the eurozone/Germany and the IMF after the elections as the IMF believes more needs to be done in order to bridge a €4.6bn funding gap for 2014, with the IMF forecasting a funding gap of €6.5bn in 2015. Remember the IMF cannot continue to lend if it is not satisfied there is secure funding for the next 12 months.
