The fund’s latest assessment of Greece’s situation, released last night ahead of a critical meeting of eurozone finance ministers on the country’s bailout funds today, suggests it would not be willing to contribute without more relaxed terms for Greece.
While Greece’s European creditors are averse to the idea of debt relief, the fund said providing “an upfront, unconditional component to debt relief is critical”.
It noted that the “implementation of debt relief should be completed by the end of the programme” – a direct contradiction to the Eurogroup’s insistence that debt relief will not be considered until Greece completes its current bailout programme, the third in total, in 2018.
EU finance ministers are meeting in Brussels today, where they are likely to approve up to €11bn in rescue funds for Greece after the country passed a host of austerity measures on Sunday and earlier this month.
The IMF’s involvement would increase confidence in the programme. However the fund has made clear in its Debt Sustainability Analysis it is not willing to part-fund a plan. It highlighted “unrealistic” targets for the public finances, namely the requirement that Greece run a budget surplus of 3.5% of GDP, excluding debt repayments.
This should be revised down to no more than 1.5% of GDP, according to the fund. “This target would in staff’s view be within the realm of what is plausible, although it remains ambitious,” it stated.
It added it is “no longer tenable” to base the programme on growth targets centred on the assumption that “Greece can quickly move from having one of the lowest to having one of the highest productivity growth rates in the eurozone”.
Greece’s economic growth has been sluggish ever since the country suffered a 25% contraction in its economy in 2009.
The fund said that even if, through some “heroic effort”, Greece reached the surplus target, few countries have been able to sustain such high levels. With its weak policy making institutions and high unemployment projections, the fund said it is highly unlikely Greece will be one of them.
It also cast doubt on whether Greece will be able to undertake the necessary reforms to reach that level of surplus with so little political and public support.
On debt relief, the fund said loan repayments should be deferred until at least 2040, or 2080 for some European loans, with grace periods of up to 17 years and interest rates fixed at 1.5%.
With no debt relief, it warned that debt could reach 250% of GDP by 2060.
Eurozone ministers will meet at lunchtime today to decide whether Greece’s reforms have been sufficient to unlock its next tranche of much-needed bailout funds, without which Greece will default on billions of dollars worth of loans due this summer.
