European countries are pushing for additional credit lines and guarantees. The IMF is opposed to any debt extensions. Now many emerging countries remember the harsh conditions they endured in the past.
Even after a multitude of austerity plans and reform programs, Greece is still unable to balance its budget. That is why the troika, made up of the members of the eurozone, European Central Bank and International Monetary Fund (IMF), has given Greece another two years to reduce its budgetary deficit to 3 percent of GDP.
By 2020, Greece has to reduce its total indebtedness from the current 180 percent of GDP to 120 percent. This extension is projected to cost up to 33 billion euros ($42 billion).
Eurozone members have pushed for further loans and European guarantees as it allows them to rescue Greece while at the same time assuring the public at home it won't cost anything as Greece will eventually repay the loans.
Jean-Claude Juncker, the president of the Euro Group, is advocating a further extension until 2022. But the head of the IMF, Christine Lagarde, is strongly opposed to the idea.
Rolf Langhammer, an economics professor and former vice president of the Kiel Institute for Global Economics, said the fact that the IMF is comprised of both European states as well as emerging countries plays a role in the IMF's stringent take sticking to standards for relatively rich European countries.
"The latter remember the harsh conditions imposed on them by the IMF in the past, when they were in trouble," Langhammer said.
Former debtors against further extensions
The attitude was also reflected in Lagarde's intransigent position, according to Langenhammer.
Lagarde is pushing the eurozone governments to cancel a portion of Greece's debts. So far, only private creditors have had to forgo some of their money. The next haircut is likely to involve eurozone countries.
German Finance Minister Wolfgang Schäuble has, however, maintained that German - and other European countries' - national laws prohibit the cancellation of debt.
"I don't think the reasoning holds," Langhammer said. "When it came to debt restructuring initiatives for poor, indebted developing countries, [governments] agreed to a haircut."
Underlying problem: Economic competitiveness
The German finance minister has instead suggested lowering the interest rates on existing credit lines saying, "It wouldn't necessarily be more expensive."
According to media reports, eurozone members are considering direct transfers. They are also discussing the involvement of the European Central Bank, which already holds some 45 billion euro's worth of Greek bonds.
Hans-Werner Sinn, director of Munich's Ifo Institute for Economic Research, said he is convinced both sides are ignoring the underlying problem: a lack of economic competitiveness.
"Greece needs to be 30 to 40 percent cheaper in order to even resume its debt repayments," he said. "We're not even close to that.”
An austerity program alone is not enough to bolster Greek competitiveness, Sinn said. He called for a haircut and Greece's swift exit from the eurozone.
As Europe's economies recover, debt levels continue to grow. But national budgets are only a few of the trees in a highly flammable forest of private debt, and government austerity may not be able to put out the flames.
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