Past Rifts Over Greece Cloud Talks on Rescue - WSJ.com - 0 views
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It included no debt restructuring, such as forgiving principal, reducing the interest rate on the debt or stretching out the payment schedule to make servicing easier.
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That spared the holders of the debt—chiefly European banks—the losses that would have come with restructuring.
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Some of the IMF dissenters at the meeting and some IMF staff believe the interests of the European powers were placed above those of Greece, which has seen its economy contract by a fifth since 2009 and its jobless rate reach nearly 28%.
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"In May 2010, we knew that Greece needed a bailout but not that it would require debt restructuring," IMF Managing Director Christine Lagarde said in a June interview. "We had no clue that the overall economic situation was going to deteriorate as quickly as it did."
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Much of the debt was held by already fragile French and German banks, so European nations wouldn't consider it. And the U.S. feared its own trillion-dollar exposure to European banks.
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"An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners," it said.
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In retrospect, the report said, the "program served as a holding operation" that allowed "private creditors to reduce exposures leaving taxpayers and the official sector on the hook."
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Ms. Lagarde was French finance minister at the time and keen to avoid losses by her country's banks, which had lent heavily to Greece.
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Several IMF directors had warned of just that outcome three years earlier. The program "may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece's private debtholders, mainly European financial institutions," Brazil's executive director, Paulo Nogueira Batista, said at the May 2010 meeting.
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now confront the prospect of a third bailout in which they would also forgive some of Greece's debt.