IMF, Germany still at odds over Greece debt as EU sees concerns

[WASHINGTON] The International Monetary Fund and the European Commission remain at odds with the German government over the need to reduce Greece's debt load, as the fund's participation in the current bailout programme remains unclear.

While the Greek government has carried out some reforms to boost economic growth, "a lot more work needs to be done going forward," IMF managing director Christine Lagarde told reporters in Washington on Thursday, expressing skepticism that Greece can recover without a debt cut.

European Commission vice-president Valdis Dombrovskis, who noted that the bailout programme is "broadly on track," said "there are concerns" about debt sustainability.

"We also believe that there has to be debt that is sustainable going forward," Ms Lagarde said. "We have demonstrated flexibility in the past in order to assess debt sustainability. We clearly believe that, as is, the debt is not sustainable."

The IMF has until the end of the year to decide on its participation, which was a key condition for the German lower house's approval of the third aid package.

Debt forgiveness at the expense of German taxpayer money or a refusal by the IMF to participate financially in the latest programme could be devastating for Chancellor Angela Merkel, who faces elections in a year from now that may present her with a challenge from the anti-euro Alternative for Germany party, whose support surged in the wake of the refugee crisis hitting Europe.

"The debt is not the problem of Greece, the problem of Greece is gaining competitiveness," German Finance Minister Wolfgang Schaeuble said at a panel discussion in Washington on Thursday, noting that Greece doesn't have to pay interest on its debt for more than a decade. "They have committed themselves and now it's up to them to deliver."

BLOOMBERG