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IMF gives Greece something to mull over

Saturday, July 4, 2015 - 07:03
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Reviled in Greece for pushing the bitter medicine of austerity, the IMF has nonetheless thrown Athens a bone by urging European countries to cough up more money to ease Greece's titanic debt load.

[WASHINGTON] Reviled in Greece for pushing the bitter medicine of austerity, the IMF has nonetheless thrown Athens a bone by urging European countries to cough up more money to ease Greece's titanic debt load.

Ignoring its own procedures, the International Monetary Fund threw caution to the wind Thursday and shook up things both in Brussels and Athens, two days before the referendum in Greece on accepting new bailout terms.

The IMF acknowledged Greece is an economic mess and needs at least 50 billion euros (S$75.4 billion) over the next three years.

But the lending giant also said Greece's European partners have no choice but to restructure Greece's debt and even, in the worst-case scenario, accept a write-off of part of it.

A report released Thursday by the IMF said the European Union may need to take losses of 53 billion euros on money it has lent to Greece.

At loggerheads with its international creditors, Greece jumped at the opportunity, at the risk of relying on the recommendations of an institution it loathes.

Embracing key proposals in the report, Greek Prime Minister Alexis Tsipras demanded Friday that creditors forgive a third of the country's debt and allow delayed repayments for the rest.

Much is at stake for Greece's EU partners.

They are the main contributors to Greece's successive bailouts, and hold 211 billion euros out of a total of about 280 billion euros that Greece owes. Of all Greece's creditors, the Europeans are the most heavily exposed to losses.

So it comes as no surprise that European leaders were less than thrilled by the recommendations of the IMF.

Germany, fiercely opposed to debt relief, quickly cried foul.

One cannot conclude that a debt restructuring is necessary, said Martin Jaeger, a spokesman for German Finance Minister Wolfgang Schaeuble.

Eurogroup chief Jeroen Dijsselbloem said the IMF analysis on Greek debt restructuring was based on outdated figures.

He addressed a sensitive issue: the IMF report was completed a week ago, before a string of critical events in the long-running Greek debt drama.

Those events include the calling of a referendum Sunday on whether to accept new bailout terms, the end of an EU aid plan for Greece and Greece's defaulting on a loan payment to the IMF.

On Friday, Mr Tsipras urged thousands of supporters at a rally in Athens to vote "No" in the weekend referendum, with the latest polls suggesting the plebiscite was too close to call.

So the report runs the risk of dividing Greece's main creditors - the IMF, the European Union and the European Central Bank - which have already squabbled several times on the issue of debt.

In 2012, the IMF obtained a promise from the Europeans to take Greece's debt levels substantially below the level of 110 per cent of GDP by 2022.

But this commitment was never kept, and Greek debt these days is close to 180 per cent of economic output.

The issue has hovered over the marathon discussions between Greece and its European partners, even if the latter have steadfastly refused to make any commitment until Athens accepts their latest bailout terms.

At a meeting last Saturday of the Eurogroup, IMF managing director Christine Lagarde urged the EU to "step back" and immediately address the Greek debt problem.

But she ran into a wall of opposition, a source close to the talks told AFP.

"We are asking the Greeks to do things that are very, very difficult. And we are asking the Europeans to do things that are very, very difficult for them," a senior IMF official said Thursday on condition of anonymity.

What is more, the IMF has something at stake.

"If there were a restructuring of Greek debt held by the Europeans, that would make Greek debt more sustainable and raise chances of the IMF getting paid back" what Greece owes it, said Charles-Henri Colombier, an economist at COE Rexecode.

But the IMF runs the risk of getting tangled up in its own contradictions. Its charter allows it to give Greece a bit of leeway through more time to settle its debt.

The Greeks have formally made such a request but for now the IMF has not given an answer.

AFP

Read more on the Greek crisis here.

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