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Greece : Implications for the US and the IMF.

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Economic Crisis: The Global Impact of a Greek Default. 25/06/2015






In the immediate aftermath of a Greek exit, one must expect a significant further depreciation of the Euro as the ECB took forceful measure to prop up the European periphery and as investors fled to the safety of the dollar. This would have the effect of causing a further effective appreciation of the dollar that would come on top of a 15 percent such appreciation over the past year.

Any eventual spread of the Eurozone debt crisis to other countries in the European periphery could roil global financial markets and dent European household and investor confidence. This would be bound to impact the US economic recovery considering how integrated is the global financial system and how important the European economy is to US trade.

Should a Greek exit lead both to a souring of European-Greek relations and to the further erosion of Greek political stability, one could see a failed Greek state increasingly coming into the Russian orbit. Already the Syriza government is actively engaged with Moscow about the construction of a Russian gas-pipeline through Greece despite the US Administration’s objections… A deepening of the Greek economic crisis is all too likely to bring Athens and Moscow closer together.

A Greek exit would have considerable implications for the IMF’s credibility. It would inevitably raise questions as to the design of the IMF’s Greek lending programs and as to the IMF’s wisdom in loaning unprecedented amounts of money to Greece to keep it in the Euro at all costs.

Considering that Greece accounts for more than a quarter of the total IMF loans presently outstanding, the Greek default will make it difficult for the IMF to make the case to Congress that US taxpayers money was not put at considerable risk by the IMF’s lending practices.

The Greek default will make it difficult for the IMF to defend its “exceptional access” lending policy that in effect removes limits on how much money the IMF can loan to an individual country.