EUROZONE-IMF/GREECE IMF calls for substantial debt relief for Greece

Record ID: 147064

  • Title: EUROZONE-IMF/GREECE IMF calls for substantial debt relief for Greece
  • Date: 15th July 2015
  • Summary: WASHINGTON D.C., UNITED STATES (RECENT) (REUTERS) EXTERIORS OF INTERNATIONAL MONETARY FUND (IMF) IMF SYMBOL ON WALL LONDON, UNITED KINGDOM (JULY 15, 2015) (REUTERS) VARIOUS OF IMF REPORT TITLED "GREECE: AN UPDATE OF IMF STAFF'S PRELIMINARY PUBLIC DEBT SUSTAINABILITY ANALYSIS" (SOUNDBITE) (English) STRATEGIST FROM MINT PARTNERS, BILL BLAIN, SAYING: "Everyone is very aware t
  • Embargoed: 30th July 2015 13:00
  • Keywords:
  • Location: Belgium
  • Country: Belgium
  • Topics: General
  • Reuters ID: LVADEOMY9LIW8W33JGX20VM1PFH1
  • Aspect Ratio: 16:9
  • Story Text: A confidential study by the International Monetary Fund, seen by Reuters, has called for much more debt relief than European countries, particularly Germany, have been prepared to offer so far.
    As Prime Minister Alexis Tsipras battled to win lawmakers' approval on Wednesday (July 15) for a bailout deal to keep Greece in the euro, a report from the IMF has called for massive debt relief for Greece in the face of its "highly unsustainable" public debts.
    The reports predicts debt will peak at close to 200 per cent of GDP in the next two years, compared to a previously forecast high of 177 percent.
    "Everyone is very aware that it's highly unlikely that Greece is ever going to be in a position to honour all its debts, repay all the bailouts and get to a situation where it can also grow its economy. So restructuring its debts, and assistance is what's desperately required," said strategist Bill Blain of Mint Partners.
    "It's going to be an enormous political problem within Germany because Merkel wants to be validated by a global international organisation like the IMF supporting continued support for Greece. But if they turn around and say hang on, this ain't going to work, that's going to put a whole different picture on it," he added.
    Its latest intervention, saying in essence that Greece will never be able to repay its debt mountain, is bound to sharpen debate when the German parliament meets on Friday (July 17) to decide whether to authorise negotiations on a third bailout for Greece since 2010 that could cost an extra 85 billion euros.
    "It gives a lot of credibility to what Greece has been saying all along of course. But in many ways what it is suggesting is that the IMF has had serious disagreements with the Europeans when they were putting the bailout package together. And that disagreement centres on whether anything that's going on right now will allow Greece to go back to some sustainable growth path. And if it can't go to sustainable growth path then obviously the debt itself is unsustainable and we're piling more debt onto Greece as a result of the third bailout - the question is will Greece ever be able to get out of it? On that basis, the IMF will find it very hard I'm suspecting to grant any more money itself because it would be breaking its rules," said Vicky Price, chief economic advisor at CEBR.
    It sharpens an unadmitted rift between Chancellor Angela Merkel, who wants to hold the euro zone together, and Finance Minister Wolfgang Schaeuble, who thinks Greece needs to leave the currency area, at least temporarily.
    Merkel can count on a big majority in favour of opening loan talks with Athens due to her grand coalition's near monopoly of seats, although she may face an embarrassing revolt among her own conservatives.
    But the IMF's debt sustainability analysis may force her within months to choose between two far more unpalatable options: grant massive debt relief or see the IMF walk away.
    "It is a bit of a slap in the face of the Germans because they are asking Greece to do things which are rather hard to do. What I think they're hoping is that the reforms that Greece is finally going to be putting forward and pushing to see them implemented under a lot of pressure will lead to higher growth, long-term growth, in the future which may indeed bring the debt down. But it's very, very hard to see how that could happen," Pryce added.
    The report's conclusion that Greece needs debt relief "on a scale that would need to go well beyond what has been under consideration to date" makes it harder for her to argue that Germany will ever get much of its 57 billion euro exposure back.
    The IMF released its findings late on Tuesday after Reuters had reported exclusively the study showing Greek debt rising to 200 percent of economic output in the next two years and staying at "highly unsustainable" levels for decades.
    To avoid big writedowns - "deep upfront haircuts" in IMF-speak - Greece would have to be given either a 30-year grace period before it starts servicing or repaying all European loans, present and future, or large fiscal transfers by the euro zone.
    The European Commission issued its own, less stark forecast on Wednesday, which said the Greek debt-to-GDP ratio would be 165 percent in 2020 and 150 percent in 2022 if Athens made reforms.
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