Must-Read: Dan Davies: Time for a Delivery of Eurofudge: "“They pretend to pay us” — or in this case...

...“The institutions pretend to give Greece debt relief”. How much would it change things if the Eurozone partners were to agree to a 20% face value reduction in all of Greece’s liabilities? In my view, it would change things not at all. Greece needs, and one day will get, a much larger reduction than that, and everyone knows it (although plenty of people find it more convenient to suppress this knowledge and pretend they don’t). So announcing it would make no difference to the real debt burden on Greece, and no difference to the amount of repayment that the Eurozone can reasonably expect. But it would make things hugely politically easier for Syriza, which is beginning to realise that it is going to have to back down on some “red line”issues in order to get a deal.

Of course, a face value reduction would make things more difficult politically for some of the Eurozone partners, and would probably be impossible for the IMF to agree to. But a face-value constant NPV reduction would be less so — extending the term (again) and reducing the coupons (again). The IMF could even certify that this was equivalent to a debt reduction, and Yanis Varoufakis could certainly explain the equivalence on Greek television.

We should not be too far from a deal by now, and so everything hangs on whether it can be presented politically in an acceptable manner to both sides. For this reason, it’s worth everyone being a little less precious about fudging a few presentational issues. Because all of this capital is going to be needed for the structural reform debate, which is going to be a lot more difficult to pretend that something’s being done if it isn’t.