Lagarde pursues 'good faith' Greek talks after leaks dispute

[FRANKFURT] International Monetary Fund Managing Director Christine Lagarde said she intends to negotiate "in good faith" with the Greek government, signaling her desire to move on from recent animosity over the latest review of the country's aid program.

"We continue to be focused on addressing the Greek situation," Ms Lagarde said in an interview in Frankfurt Tuesday with Bloomberg Television's Francine Lacqua.

Talks are focused on restoring Greece's financial stability to deliver debt sustainability, and to equip the economy with the structural reforms needed for the country to stand on its own two feet, she said.

Ms Lagarde indicated that some fiscal flexibility may be available to Prime Minister Alexis Tsipras's government on the condition that euro-area member states provide more debt relief to Greece.

"If the primary surplus is a bit lower," then the debt operation needs to be stronger or longer term, "but it needs to add up," she said. The Washington-based fund isn't willing to "cut a deal on the side," bending its own rules on debt sustainability and structural reforms, she added.

Greek bailout monitors are in Athens this week, negotiating with the government over a series of measures required for the disbursement of the next tranche of emergency loans to Europe's most indebted state.

Klaus Regling, who heads the euro area's crisis fund, told reporters in Luxembourg on Tuesday that he aims to complete the Greek review in early May. "We very much hope that the IMF will also be on board by then," he said.

German Chancellor Angela Merkel ruled out a debt cut for Greece as legally impossible under euro-area rules while sticking to her demand that the IMF "must be a participant in the program" after she and Ms Lagarde discussed the bailout during meetings in Berlin later on Tuesday. There are "other possibilities" for debt relief, Ms Merkel told reporters.

"We're on a very sensible path, but unfortunately we're not there yet," she said.

Ms Lagarde's comments followed an exchange of strongly worded letters after WikiLeaks published of what it alleged was a transcript of an IMF conference call on Greece.

In the Bloomberg interview, she suggested that she's willing to let the heat stemming from the weekend exchange dissipate.

"We've gone through ups and downs," she said of the talks with Greek officials. "We are there for the people."

Greece's government said the leaked transcript showed the IMF has been considering a plan to cause a credit event in Greece and destabilize Europe, an accusation Ms Lagarde said was "simply nonsense".

In a letter to Mr Tsipras on Sunday, Ms Lagarde said the two sides are "a good distance away" from an agreement that could be presented to her organization's board for approval.

Mr Tsipras's allegations "were an attempt to solidify party support in the face of a convenient enemy for political gains," said George Pagoulatos, a professor at the Athens University of Economics and Business.

The premier's exchanges with Ms Lagarde over the weekend "were also forward-looking, in the sense of preemptively scapegoating the IMF for a potential deadlock in the program review talks," Mr Pagoulatos said in an interview.

The IMF has been at loggerheads with auditors from the European Commission, the European Union's executive arm, over the fiscal measures that the nation must implement in order to meet its budget targets and reduce its debt.

Germany and other euro area countries have resisted IMF calls for deeper Greek debt relief and insisted that the fund will eventually have to get on board for the bailout to proceed.

Greek Economy Minister George Stathakissaid on Tuesday in Berlin that Greece's debt is sustainable until 2022, signaling the government may be willing to tone down its IMF-backed calls for debt relief, as it seeks to side with European auditors who have asked for less austerity measures.

The strategy of isolating the fund may not do well with European officials weary of Greece's chronic reluctance to comply with calls to reform its economy.

The "IMF has become an indispensable part" of European bailouts, said Bundesbank President Jens Weidmann. The fund "assesses the situation independently, almost free from political considerations and the necessity to compromise," Mr Weidmann said Tuesday at a conference in Frankfurt.

Greek stocks rose 0.3 per cent at 3:02 pm local time in Athens on Tuesday. Yields on 10 year bonds climbed 19 basis points to 9.06 per cent.

Greek notes are the worst performing of all major sovereign securities tracked by Bloomberg's World Bond Indexes this year.

BLOOMBERG