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Will Greece Decide the German Elections? If So, What's Next?

Authors: Benn Steil, Senior Fellow and Director of International Economics, and Dinah Walker, Analyst, Geoeconomics
September 17, 2013
Forbes Online


On September 22, Germans head to the polls for Europe's most eagerly awaited elections – the elections that the rest of the world hopes will allow a freshly mandated Chancellor Angela Merkel to finally come to grips with Greece's impending insolvency. Greece's ability to secure continued financing is central to its ability to remain in the eurozone, which may in turn determine whether Portugal and others, some much larger and more important, can do so.

What is much less well known is that Greek solvency may itself be of great consequence to the German elections.

The International Monetary Fund has been making waves of late, not least in Germany, by casting doubt on Greece's solvency – most recently, projecting a financing gap for Greece opening up in August of next year. IMF rules forbid Fund lending to countries with projected financing gaps over the coming twelve months.

The next IMF Greek program review, which will cover the issue of securing adequate funding for Greece through the end of 2014, is scheduled for September 29 – just one week after the German elections. The July review stated that additional financing will need to be identified by this time. Yet any delays in the formation of a new German government and wrangling over cabinet positions will make this impossible. Unfortunately, delays and wrangling are looking more and more likely.

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