Greece, not again?

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The International Monetary Fund (IMF) has determined it cannot offer funding toward a third bailout for Greece, citing astronomical levels of debt and a poor record of government follow-through on reforms.

IMF Rejects Greek Bailout Package, Widening European Rift On Greece

"The cost of bearing the debt is very low for Greece, precisely because much of the interest and repayment has already been postponed. The only debt which is particularly expensive, except for short term bills, is the IMF debt," he said.

Why the IMF is wrong on a Greek debt haircut

When the ECB buys a Eurozone member’s bonds, the government pays interest to the ECB but the ECB rebates it to the government. If Greece repays its ECB-held bonds, it loses this ‘free borrowing’. This column argues that repayment is like ‘reverse QE’. To maintain its QE targets, more bonds from other EZ members must be bought – thus shifting the free borrowing from Greece to other EZ members. To avoid this perverse outcome, the ECB could extend the maturity of the Greek bonds.

Why the ECB should not insist on repayment of its Greek bonds | VOX, CEPR’s Policy Portal

On the economics of the eurozone, Thimann argues that the problems have microeconomic roots, not just macroeconomic ones. Here are a couple of intriguing figures. Thimann points out that since the inception of the euro, some economies have consistently run trade surpluses, while others have consistently run trade deficits. This figure shows the cumulative trade surpluses and deficits over time. What's especially interesting to me is the relative steadiness of these lines: countries with trade surpluses tend to add surpluses every year, countries with deficits tend to add deficits every year.

CONVERSABLE ECONOMIST: Europe: When the Macro Overshadows the Micro

With a large fiscal deficit during the cycle peak, it means you as a government have much less fiscal space to play with when a downturn hits. It means that the fiscal adjustment path to a primary surplus is enormous. And given the debt deflation this policy path creates, the adjustment will be even larger because debt and interest costs will soar as a percentage of output as the economy shrinks.

Here's what contributed to the downfall of Greece - Business Insider

This is prima facie evidence that fiscal management issues were a primary cause of the problem for Greece — in stark contrast to Ireland and Spain. Yes, private debt soared in Greece in the period up to the financial crisis. But it started from a low base and was not at levels in other developed countries where you would expect a financial crisis. However, once the fiscal adjustment began, these private debts became toxic as debt deflation set in and the economy and banking system collapsed.

Here's what contributed to the downfall of Greece - Business Insider