There is a "75 percent chance" that Greece will default on its debt obligations by the fall, according a former top economist with the International Monetary Fund (IMF).
Default is likely even if the debt-wracked country makes loan repayments to the IMF that are due by the end of June, said Desmond Lachman, economic scholar at the American Enterprise Institute and onetime deputy director for Policy and Development Review at the IMF.
In an exclusive interview with Newsmax on Friday, Lachman said "time is running out" for both Greece and the three institutions (the IMF, European Central Bank, and the European Commission) to which it owes roughly 240 billion euros.
"There is growing frustration that the negotiations aren't moving along and time is running out," said Lachman, who also served as chief emerging market analyst at Salomon Smith Barney. "If Greece compromises too much, then [Prime Minister Alexis] Tsipras will face a split within his government with the very extreme left walking out and possibly bringing him down."
Lachman spoke to us shortly after Secretary of the Treasury Jack Lew called on all the parties involved in the Greek financial rescue to show "greater flexibility" in the weeks ahead.
With roughly $1.8 billion in repayments from Greece to the IMF due by June 30, more than one observer has interpreted Lew's "greater flexibility" remark as a not-so-subtle suggestion to the IMF that it renegotiate the terms of its loan to make repayment easier for Athens.
According to Lachman, Secretary Lew "was making it clear he understood that financial instability in Greece could easily send Mr. Tsipras into the warm embrace of one Vladimir Putin."
In April, the Greek prime minister held a controversial summit with the Russian president, fueling speculation that he would seek a fresh bailout agreement from Moscow. During that visit, Tsipras denounced European Union sanctions against Russia over Ukraine as "a road to nowhere."
"But [IMF Managing Director] Christine Lagarde can't simply say, 'All right, we are no longer requiring Greece to balance its budget or reform state pensions,'" added Lachman. "The U.S. might be the IMF's largest shareholder, but it is certainly not the only party involved.
"So Madame Lagarde is constrained. A lot of her shareholders aren't exactly happy campers right now. If there were a relaxing of the rules of the loan repayment, Brazil, say, might tell her in no uncertain terms: 'You're just letting Greece get away with not paying because it is a European country.'"
Lachman added that the IMF and other lenders can "kick the can for a while, but there are limits to what the creditors can put up with." He said a relaxation of repayment rules "could lead to, for example, German political foes of Chancellor Angela Merkel charging that she is 'too generous to Greece.'"
Lachman also pointed to Spanish general elections toward the end of the year and the possibility of the new leftist Podemos party, in many ways similar to Tsipras' Coalition of the Radical Left, winning power in Madrid on an anti-austerity platform. If Greece is given a break by its European creditors "it will make it all the easier for Podemos to win that election."
"There are just too many issues here and too many different players for the Greek bailout to work," he told us. "I say there’s a 75 percent chance of default by the fall. It's just a question of time."
John Gizzi is chief political columnist and White House correspondent for Newsmax.
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