Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Debt"

Yes or No, Greece Needs Debt Relief

by Robert Kahn

The International Monetary Fund (IMF) has released their most recent debt sustainability analysis for Greece and, while it doesn’t include the devastation resulting from this week’s bank and capital controls, it makes for sober reading. Its bottom line is that, even if Greece were to commit to the policies now being proposed by the creditors, and were to fully implement them, Greece will need over €50 billion in financing over the next three years (see table), and require long-term debt relief through extraordinary maturity extensions and concessional interest rates. Factor in the damage in the past week, and the likelihood of further slippage in the best of scenarios, and the message is clear:  however the referendum turns out this weekend, actual debt haircuts eventually will be needed as part of any successful reform program for Greece within the eurozone.

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Greece: Game Over?

by Robert Kahn
People line up to withdraw cash in Athens on June 28, 2015. (Alkis Konstantinidis/Reuters) People line up to withdraw cash in Athens on June 28, 2015. (Alkis Konstantinidis/Reuters)

This is how Grexit happens. Following the collapse of negotiations between Greece and its creditors, the European Central Bank (ECB) has halted emergency liquidity assistance. Facing an intensified bank run, the Greek government on Sunday introduced banking controls and declared a bank holiday. With substantial wage and benefit payments due this week and local banks out of cash, economic conditions are likely to deteriorate quickly in Greece ahead of a planned referendum for July 5 asking Greek voters whether the government should accept a creditor-backed reform plan.

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A Roadmap for Ukraine

by Jennifer M. Harris and Robert Kahn

U.S. and European efforts to resolve the Ukraine crisis seem to be finding their stride in recent days. U.S. Secretary of Defense Ash Carter ended months of “will they won’t they?” by announcing earlier this week that the U.S. would be sending heavy weaponry into Eastern Europe, and late last week EU leaders declared that EU sanctions against Russia would remain in place through the end of 2016, quelling months of anxiety around whether EU resolve on sanctions would hold.

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Déjà vu in Greece

by Robert Kahn

Here we go again. The counterproposal from Greece’s creditors has been leaked, and it underscores how far apart the two sides remain on a range of issues: VAT, corporate taxes, and especially pensions. Greek Prime Minister Alexis Tsipras has been called to Brussels to join European finance ministers in a marathon push today to negotiate a compromise that will release critically needed funding. We heard reports today of Greek backtracking, of the IMF’s deep resistance to the Greek proposals, and the prime minister’s questioning of his creditors’ motives. This is a dynamic we have become all too familiar with. It doesn’t preclude a deal, but it makes it harder to get to “yes” and contributes to short-term, kick-the-can solutions.

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Greece: Still No Deal

by Robert Kahn
Greece: Still No Deal Critical decisions will likely have to wait for the next finance ministers’ gathering. (Paul Hanna/Reuters)

European finance ministers met earlier today and afterwards stated that new proposals from the Greek government were “broadly comprehensive” and “a solid basis” for restarting talks, but made clear that the Greek plan was far from complete and received too late for a deal to be concluded today. Markets had rallied earlier on hopes of a deal. But they fell back on comments from German Finance Minister Wolfgang Schauble and others who saw little new in the Greek proposal, suggesting significant splits among creditors. Leaders meet this evening, but it now appears that critical decisions will wait for the next finance ministers’ gathering, likely Thursday. Separately, the European Central Bank’s (ECB) board again expanded emergency assistance by 2 billion euros to Greek banks after weekend ATM withdrawals and orders for today reportedly exceeded 1.4 billion euros. With today’s modestly constructive statements though, it will be difficult for the ECB to cut off access to Greek banks over the next few days even in the face of broad insolvency in the Greek financial system.

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Greece’s Bridge to Nowhere

by Robert Kahn
Greece's Bridge to Nowhere Last week, Greece delayed a $338 million payment to the IMF as negotiations stalled. (Grigoris Siamidis/Reuters)

Negotiations continue today between Greece and its creditors, with reports that the government has presented a revised proposal that offers minor concessions in an effort to break the deadlock. A deal is needed in the next week if a package of assistance is to be put in place before end-month payments of $1.7 billion are due to the IMF. While this is not a hard deadline—a short-term default to the IMF need not sink the Greek economy—the government is out of cash and it is hard to imagine how they make critical domestic payments without an injection of cash from creditors.

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Greece and the Politics of Arrears

by Robert Kahn
Merkel-Tsipras German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras review an honour guard during a welcoming ceremony at the Chancellery in Berlin on March 23, 2015. (Pawel Kopczynski/Courtesy Reuters)

Greece is running out of money. Greek Prime Minister Alexis Tsipras’s meeting this week with German Chancellor Angela Merkel has taken some of the toxicity out of the conversation for now, but cannot mask Greece’s current collision course with its creditors. Committed to a platform on which it was elected but that it cannot pay for, and with additional EU/ECB financing conditioned on reform, the Greek government is likely to run out of money in April (if not before). If past emerging market crises are any guide, the decisions that it will then confront about who to pay and who not to—the politics of arrears—will present a critical challenge to the government and likely define the future path of the crisis.

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Ukraine’s IMF Program Sets Stage for Debt Restructuring

by Robert Kahn

The IMF yesterday approved a four-year, $17.5 billion arrangement for Ukraine, their contribution to a $40 billion financing gap that they have identified over that period. A further $15 billion is to come from a restructuring of private debt, with formal negotiations expected to begin soon. The rest is expected to come from governments and other multilateral agencies. An ambitious array of reforms—including to fiscal and energy policy, bank reform, and strengthening the rule of law—are laid out, signaling a dramatic break from past governments. These measures are expected to set the stage for recovery: output falls 5 ½ percent this year before 2 percent growth returns in 2016, inflation will average 27 percent this year and then decline, while the current account deficit falls to 1 ½ percent and the currency stabilizes around current levels. Public sector debt will peak at 94 percent of GDP in 2015 as the program takes hold. All this depends on an end to the current hostilities, which as the IMF notes remains a considerable risk to the program.

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The Meaning of Ukraine’s IMF Deal

by Robert Kahn

While today’s headlines focus on the truce agreement between Ukraine and Russia, a significant economic milestone was achieved yesterday with the IMF’s announcement that its staff has reached agreement with the government on a new four-year program. The Fund’s Board will likely consider the program next month. Whether or not the truce holds, the program is the core of western financial support for Ukraine. Is it enough?

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