Pepare for some tense moments in the next few weeks and months as Greece and its creditors struggle to agree the first review of last year's bailout... The International Monetary Fund has concluded that Greek public debt, at 180 per cent of gross domestic product, is unsustainable; as is the agreed annual primary budget surplus, before interest payments, of 3.5 per cent of GDP. The fund insists on debt relief, but Germany resists.


In private, senior German government officials agree that Athens needs debt relief. They are not blind. But they are trapped in the lie that Greece is solvent, which is what their own backbenchers were told. Without that lie, Greece would no longer be a eurozone member. But the lie cannot be sustained.


[The IMF] wants to come clean now; or as an official recently told me it wants to regain its lost virginity. In doing so, it would restore its reputation and call Berlin's bluff. There is, of course, a risk this stand-off would trigger another euro­zone crisis. Ms Merkel has good reason not to let the situation escalate.

A Greek debt writedown might not be popular in the Bundestag but another eurozone crisis would be a political disaster for her. It would expose the dishonesty of her eurozone rescue strategy. I see no chance of her risking a Grexit at a point when her deal with Turkey to host refugees who reach Greece is on the verge of collapse.


My conclusion is that a credible threat by the IMF to pull the plug on its participation in a Greek bailout could force the Europeans, and the Germans in particular, to come clean.

If the Europeans want to continue their path of "extend and pretend", extending the loans and pretending Greece is solvent, so be it. But it should at least be their own money they pour in. In this case they should buy out the IMF bailout loans to Athens, which means taking over the fund's credits to Greece.

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