POLITICS

Europe Offered Greece A Deal To Meet Its Obligations By Cutting Military Spending. The IMF Said No Way.

06/15/2015 05:16 pm ET | Updated Jun 15, 2015

While European leaders and International Monetary Fund representatives continue to blame Greece for the impasse in negotiations over the terms of Greece’s bailout, a Saturday report by the German newspaper Frankfurter Allgemeine Sonntagszeitung reveals the IMF vetoed a compromise that cut military spending proposed by the European Commission.

European officials involved in the negotiations told the Frankfurter Allgemeine Sonntagszeitung that the vetoed proposal, put forward by European Commission President Jean-Claude Juncker, would have allowed Greece to defer 400 million euros in pension cuts, as long as it cut an equivalent amount from its military budget. The German newspaper reported that German Chancellor Angela Merkel and French President François Holland had signed off on Juncker’s compromise plan.

The IMF denied the accounts of the officials who spoke to the Frankfurter Allgemeine Sonntagszeitung.

If the report is correct, ideology is playing just as much of a role as arithmetic in preventing a resolution. The IMF's refusal to consider a plan that would lessen pension cuts is consistent with its historically neoliberal political philosophy.

The report also belies claims by Greece’s troika of creditors -- the IMF, European Commission and European Central Bank -- that they remain unified in their firm negotiating stance. In addition, it appears to confirm that the IMF is the most hawkish of the three creditor parties.

Greece owes the IMF a 1.6 billion euro repayment by the end of June, but in order to make the repayment, it needs access to the final 7.2 billion tranche of bailout money that the troika is withholding. The troika has made release of the last bailout installment conditional on hard budget surplus targets and reforms. Greece’s left-wing government wants more flexible terms to allow its economy to recover and restore funding to its social programs.

Talks between Greece and European creditors fell apart on Sunday after negotiators met briefly and were unable to bridge differences. European Commission negotiators said talks broke up over Greece refusal to agree to 2 billion euros in permanent budget savings. Greece said it wanted to continue negotiating, but the creditors refused to do so.

Key sticking points between the two sides include the size of Greece’s primary surplus requirement, a proposed value-added tax increase and cuts to Greece’s pension. Greece also wants a cancellation of a significant portion of its debt, which the troika has said it will not allow to become part of negotiations over the release of the 7.2 billion euro bailout installment.

The failed weekend talks are the latest stage in a game of chicken between Greece and the troika that has escalated in the recent weeks. The IMF withdrew its negotiating team from Brussels on Thursday, blaming Greece for the lack of progress.

The IMF withdrawal followed a defiant move by Greece the previous week. On June 5, Greece announced that it was bundling the four installment payments it owes the IMF for the month of June into a single payment of 1.6 billion euros at the end of the month. June 30 also marks the end of the four-month extension passed in March to allow for the newly elected Greek government to negotiate new bailout terms with the troika.

The tense state of negotiations has prompted many observers to warn of an imminent Greek exit, or “Grexit,” from the eurozone currency union. A Grexit would occur if Greece defaulted on its debts, and then either decided to leave the currency voluntarily or had its line of credit cut off by the European Central Bank.

As The Huffington Post has previously reported, the doomsaying is premature. The experts who spoke to HuffPost were at odds over whether the latest public disagreements represent political theatre aimed at shoring up domestic constituencies in Greece and creditor nations like Germany, or genuine policy disagreements. But one way or another, they said, both sides are concerned enough about the unknown consequences of a Greek departure that it remains a highly unlikely scenario.

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