IMF urges shake-up of Greek bailout
Last year’s deal on an €86bn bailout to prevent Greece from leaving the eurozone may need to be completely renegotiated with more realistic fiscal targets for the International Monetary Fund to take part in the rescue, its chief has warned.
Christine Lagarde said that forcing Athens to achieve the demanding budget surplus targets written into the bailout would require “heroic” efforts by the Greek people, given the deep austerity measures required. She added that maintaining such surpluses well into the future is “highly unrealistic”.
Her statements are a clear sign that Ms Lagarde is now confronting the possibility of pulling the IMF out of the Greek rescue after nearly six years during which the fund’s reputation has taken a battering. Although Athens and its eurozone partners agreed to a third bailout in July, the IMF has not yet signed up. Germany has repeatedly warned it may no longer be able to support the deal if the IMF quits.
However, although she refused to say how the IMF would stay involved, Ms Lagarde on Thursday said “we will not walk away” from Greece.
The IMF and the Greek government are in the middle of an increasingly hostile war of words over the future of the programme, which must be decided before €3.5bn in debt payments fall due in July.
Writing in the Financial Times, Greek prime minister Alexis Tsipras accused the IMF of “changing the design of the reforms” proposed by Athens and backed by Brussels, arguing the IMF is attempting shift the tax burden “on to the relatively poor”.
“Our government was elected with a mandate to meet the twin objectives of fiscal discipline and credibility, on the one hand, and inclusion and social fairness, on the other,” Mr Tsipras wrote.
Mr Tsipras agreed to pass tax increases, spending cuts, and economic reforms to enable Athens to reach a primary surplus — the balance before debt interest payments — of 3.5 per cent of economic output by 2018. With such a surplus Athens could in theory begin paying down its mountain of debt, which is projected to top 185 per cent of gross domestic product this year.
Athens believes the target is achievable with a series of higher income taxes, pension reforms and better collection of value-added and other taxes, a view shared by the European Commission.
But the IMF remains highly sceptical, and has instead urged fewer tax hikes and deeper pension cuts to reach a more modest 1.5 per cent target by 2018. Rather than deeper austerity, the IMF wants eurozone governments to grant Athens sweeping debt relief.
“[The] 3.5 per cent [target] in the short term might be achievable by some heroic — and I really mean heroic — effort on the part of Greece and the Greek people. We are sceptical about it, but we are open to seeing what additional measures the authorities are proposing,” Ms Lagarde told reporters ahead of today’s start of the IMF spring meetings in Washington.
“What we find highly unrealistic on the other hand is this assumption that this primary surplus of 3.5 per cent can be maintained over decades,” Ms Lagarde added. “That just will not happen.”
Although Brussels and the IMF have historically presented a unified front to Athens, the differences have become so severe that last week they resorted to presenting the Greek government with two separate plans for how to break the bailout impasse.
The war of words between Mr Tsipras and the Fund comes just two weeks after the leak of a transcript of a confidential IMF conference call in which the Greek programme was discussed.
Mr Tsipras said the call showed the IMF was attempting to push Athens into bankruptcy. In a subsequent letter to Mr Tsipras, Ms Lagarde called the allegation “nonsense” and hinted she believed the Greek government was responsible for recording and leaking the call, which included IMF staff who were working in an Athens hotel.
Mr Tsipras has been attempting to rally his European allies in recent days, flying to Paris on Wednesday and Brussels on Thursday night.
Athens also announced this week it would pass new tax-reform measures without consulting bailout monitors, a move that the EU and IMF have previously deemed a provocation.
IMF officials have been bemused by the vehemence of Mr Tsipras’ criticism. They insist they are proposing less austerity and more debt relief — things Mr Tsipras has in the past demanded. But the IMF remains highly unpopular in Greece, and Mr Tsipras’ Syriza party has fallen far behind the opposition New Democracy in recent opinion polls.