If Greece is certain to default—and many in the global financial community suspect it is—then Antonio Borges didn’t get the memo.
The director of the International Monetary Fund’s European Department stated flatly Friday that all Greece has to do is follow the strict austerity measures attached to its bailout and it will avoid restructuring its debt, a move that could set off a global financial crisis.
“If the Greeks do what they have to do, there will be no default,” Borges said during a closely watched presentation at this weekend’s International Monetary Fund meeting.
Of course, that’s much easier said than done.
The debt-laden nation is stuck in low or no growth and must at the same time take austerity measures to meet the conditions of the European Financial Stability Facility. That almost guarantees the Greeks will not able to grow out of their problems.
In fact, Greece’s own financial minister, Evangelos Venizelos, was quoted by two newspapers as saying an orderly default with bondholders losing 50 percent of their principle was one of three possible scenarios to get the nation out of its debt mess.
Yet Borges believes the accord among IMF nations this summer was a landmark event that could prevent a Greek default—under, of course, some pretty stringent conditions.
“This was a remarkable statement,” Borges said of the IMF’s pledge to support member nations in financial trouble. “However, there is a condition in that decision, and the condition is the countries that want support have to do the right thing.”
Borges emphasized that the EFSF bailout is about more than money, but rather about “the credibility of the program and the policies we put in place.”
"Greece is a small country. The impact of problems associated with Greece is small," he said. "The problem today is we are beyond Greece."
His public proclamation that there should be no Greek default, raises the stakes in the sovereign debt game.
Borges called for a global solution that he hopes to forge at this weekend’s meeting, where he said the message will be for a “more collective approach” to a serious crisis.
“This is why we need a global approach, because everyone is (affected),” he said. “No one can say this has nothing to do with me.”
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