Greece is right to do whatever it can to meet its obligation to the IMF, one of the world’s very few preferred creditors. As I argued earlier, a default to the IMF would most likely trigger a cascading interruption of what little new funding is still making its way to Greece, including the absolutely critical “emergency liquidity assistance” from the European Central Bank. That means an IMF non-payment would most likely be followed by a series of other defaults, the imposition of capital controls, and the de facto introduction of a new currency through the issuance of government IOUs to meet domestic obligations such as pension payments and civil service salaries.
A Greek default to the IMF could also be harmful to the international monetary system. Such failures have until now been contained primarily to very few failed and fragile states, and it used to be unthinkable that a default could involve an advanced economy, let alone a member of an elite grouping such as the euro zone.
Yet, by doing the right thing – for itself and for the multilateral system – Greece is getting very little in return.
[…] Greece, the euro zone and the international monetary system need an urgent and sustained implementation of a set of meaningful policies, including action by the Greek government on internal reforms, greater debt relief from creditors and a pro-growth recasting of fiscal austerity.