An Exhausting and Eventful Greek Weekend

1. What Greece Got

2. What Europe Got

3. What's Still Unresolved

It's unusual for heads of state and finance ministers to pull the equivalent of a college student "all-nighter" to meet a particularly difficult homework problem deadline - but they did late Sunday night and into Monday morning!

Here is my take-away of the key outcomes of the weekend marathon.

What Greece Got:
Notwithstanding most media reports are focused on what Greece DIDN'T get in the way of concessions, the reality is that Greece got what it wanted most - genuine debt forgiveness is now on the table for discussion and negotiation. This also happened to be what Europe was most reluctant to concede. Yet without debt forgiveness, there is little hope for the future well-being of Greece and its people. This is the hard-fought-for concession that Greece wanted and eventually came away with. Mind you, there is no guarantee that there will be any debt forgiveness, but there is a promise that it will be considered if Greece makes good on their other commitments. This is a game-changer in sovereign debt discussions involving developed countries. And Greece has the added advantage now that both the IMF and the US have come out in favor of meaningful debt forgiveness going forward.

What Europe Got:
While Europe extracted more concessions than what was in previous draft proposals, the most substantive concession in my view is the new role of the IMF in Greek governance. The IMF has been the bankers' (also known as the Trioka) eyes and ears in Greece. They have been given very intrusive access into the financial reporting and management processes in Greece. The Greeks hoped in this weekend's negotiations to exclude the IMF from any participation in the future dealings between Greece and Europe going forward. Instead, the IMF will now become the Trioka's "enforcer" of the terms of all new agreements. Not only will the IMF continue its intrusive monitoring of financial reporting and management of the Greek economy, it will now become a voting (and even vetoing) member of the institutions that govern the future of the Greek economy. I think this is by far the most far-reaching concession made by the Greeks.

What Is Still Unresolved:
What is still unresolved are the terms under which nations of the world can in effect declare a limited form of bankruptcy in order to get genuine debt forgiveness (rather than just an extension of payment terms and reduction of interest rates). Historically when governments have been unable to pay their creditors, the creditors have dictated the terms and consequences of repayment. This conforms to the old adage that "he who has the gold makes the rules". The reason that the Greek debt crisis could have impact well beyond the relatively small Greek economy is that the developed world is considering a mechanism whereby political institutions could replace financial institutions in dictating the terms and consequences of the non-payment of sovereign debt. This could result in a shift of power from financial institutions to political institutions of a magnitude unprecedented in recorded history. It could also end up being a non-issue. However this past weekend, this very possibility has become a key policy agenda item for future discussions of sovereign debt.