The International Monetary Fund, IMF, has signaled its willingness to participate in a new loan program for Greece, Handelsblatt has learned from sources close to the discussions. The move would be a victory for German Finance Minister Wolfgang Schäuble, who has insisted on the IMF’s participation in a new bailout plan, but critics decry the deal as window-dressing.
Under the agreement, the IMF would only need to pay out money if Greece can prove its debt to be sustainable. Greece has rejected the deal.
Euro-zone countries are debating debt relief for the southern European country when its current bailout ends in 2018, but the IMF has claimed it has not received enough details on such plans to provide new loans for the ailing nation.
However, the IMF’s general agreement to participate would allow Mr. Schäuble to calm skeptical German parliamentarians by saying the IMF was on board.
The latest compromise would provide Greece with some room to breathe, just ahead of a looming default in July when the country has to repay some €7.3 billion ($8.20 billion) in maturing loans. Europe’s bailout fund, ESM, would be able to pay out the next loan tranche, winning time to sort out the pressing questions over long-term debt relief in the process.
Critics call the agreement an act of window-dressing, postponing an actual solution to the problem.
Such a long-term arrangement is still a long way off, however, as internal ESM documents, seen by Handelsblatt, have shown. Critics thus call the agreement an act of window-dressing, postponing an actual solution to the problem. They are afraid that the IMF might end up paying not a single cent by the time the bailout is completed in 2018.
A source close to the debate has told Handelsblatt that the German minister has underestimated the IMF’s tenacity.
Euro-zone finance ministers and IMF representatives have been unable agree on a future scenario for the growth prospects of the Greek economy. In the paper reviewed by Handelsblatt, the ministers expect Greece to grow at an annual rate of 1.3 percent over the next 40 years and to achieve a primary surplus – the budget balance before debt servicing – of 2.6 percent. Under such a scenario, no debt relief would be necessary and Greece’s level of debt would drop below 60 percent of its gross domestic product by 2060.
The IMF, however, doesn’t believe in such rosy forecasts. It expects Greece’s economy to grow by a mere one percent and reach a primary surplus of 1.5 percent, which would see the country’s debt level climb to 226 percent of its GDP by 2060. Greece would require significant debt relief under such a scenario.
But calls for debt relief have so far fallen on deaf ears with Germany’s finance minister, known for his staunch stance on the matter. Mr. Schäuble only on Tuesday brushed aside German Foreign Minister Sigmar Gabriel’s calls for concrete commitments on euro-zone debt relief beyond the agreements defined for the end of the program in 2018. Instead, he said, Greece had to fully implement its reform measures.
But sources told Handelsblatt that the finance minister in talks with the IMF’s European Director Poul Thomsen signaled readiness to flesh out the details of a possible debt relief in 2018.
Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. To contact the authors: firstname.lastname@example.org, email@example.com