IMF must stay, Grexit risk not over: EU bailout chief

[ATHENS] Greece cannot remove the IMF from its economic bailout, the head of the EU's rescue fund said Sunday, adding that the possibility of a Greek eurozone exit remains if reforms are neglected.

"There has to be a financial contribution because the IMF, according to the ESM Treaty and to the agreement in the July summit, should be part of the programme also financially," Klaus Regling, head of the European Stability Mechanism, told To Vima weekly.

Greek Prime Minister Alexis Tsipras last week argued that the global lender's participation was "not necessary" in the country's third bailout, highlighting the International Monetary Fund's "unconstructive" position in demanding tough reforms and guarantees.

But Regling warned Sunday: "If the IMF decides not to participate it could be a big problem." "My assumption is that the IMF will participate," he said, adding that the contribution "is likely to be small." Tsipras' leftist government was forced in July to back down from its anti-austerity electoral pledges and accept a three-year, 86 billion euro (S$133 billion) rescue from its eurozone partners.

At the time, the threat of Greece being forced to leave the eurozone had been broached in Brussels, and Regling on Sunday said the risk was theoretically still present.

"Greece has agreed to implement reforms which are necessary so that its partners can provide the financing needed and Greece can return to a sustainable economic situation," the European Stability Mechanism chief said.

"But ultimately the possibility is always there, if commitments as a member of monetary union are not respected," he said in reference to the so-called Grexit.

Tsipras' administration has since July pushed through parliament a number of unpopular bailout reforms, losing part of its majority in the chamber to defections in the process.

Next week lawmakers will be called to approve the privatisation of electricity distributor Admie and the sale of non-performing business loans to distress funds.

But Athens must next overhaul its social security system and possibly cut pensions, a measure that is likely to put further pressure on the government's tenuous hold on parliament.

AFP