Greece’s Debt Crisis Arrives in Foggy Bottom

The standoff over Greek debt is coming to Washington.

As finance ministers from around the world arrive Friday for the International Monetary Fund’s spring meetings, Athens, its European creditors, and the emergency lending bank are once again at odds over a potential bailout installment of 5 billion euros, or $5.6 billion. Greek Prime Minister Alexis Tsipras needs the money to make a $4 billion debt repayment, due in July.

It’s part of a broader, $95 billion bailout plan agreed to last year to pull Athens back from the edge of financial ruin. In exchange for the money, Greece agreed to make budget cuts by reforming its pension system, raising the retirement age, and increasing taxes. The $5.6 billion at the heart of the immediate dispute is an installment from the first $26 billion tranche of the payout. Since 2010, Athens has received nearly $264 billion in rescue funds from Europe and the IMF.

The issues at hand are all too familiar to those who have followed the Greek debt crisis, which began in 2010. Creditors want Athens to commit to budget savings of about $6.1 billion, or 3 percent of Greece’s GDP. However, the IMF and the European Union’s executive arm, the European Commission, disagree on whether this is enough to meet requirements of the bailout plan. The commission believes the savings are enough for Greece to reach a primary budget surplus, excluding interest, of 3.5 percent of Greek GDP by 2018 — enough to free up bailout cash.

The IMF sees things differently. It believe spending cuts — which have yet to be submitted to Greek Parliament, let alone approved — would generate cash savings only amounting to 1.5 percent of Greek GDP, which is below the agreed-to threshold. It wants Germany and other EU members to agree to lower the surplus target for Greece and to forgive some of its debt.

This is a red line for Germany, a nation which has held Tsipras’s feet closest to the fire as the debt crisis slogs along. On Tuesday, German Finance Minister Wolfgang Schaeuble reiterated Berlin’s long-standing position: There will be no more debt relief for Athens.

Schaeuble, along with Greek Finance Minister Euclid Tsakalotos, is expected to attend the upcoming IMF meeting. And while the standoff is expected to be discussed on the sidelines of the talks, no one expects a breakthrough in Washington to negotiations that have been ongoing for nearly two months.

The standoff is the latest drama in a crisis where there is no short supply. Last summer, in the midst of a run on their banks and limits on ATM withdraws, Greeks rejected European austerity measures, only to accept even harsher spending cuts months later in exchange for the rescue. Since then, Tsipras has been a vocal critic of the debt deal and the IMF.

According to Mujtaba Rahman, head of the Eurasia Group’s Europe practice, this sets up a familiar situation: Without help, Greece will be unable to pay its debts this summer while Europe and the IMF hold Athens’s financial fate in their hands.

“This can all unravel very quickly, either because Greece can’t table credible policy measures, can’t legislate them, or because the IMF and Germans can’t agree on the size of debt relief,” Rahman told Foreign Policy on Wednesday.

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