Handelsblatt Exclusive

IMF Head Offers More Time in Greece Debt Talks

IMFC finance ministers and governors meet at IMF and World Bank Meetings in Washington
Have they buried the hatchet? Picture source: Reuters

The managing director of the International Monetary Fund, Christine Lagarde, is willing to participate in a Greek bailout and give European creditors more time to settle an ongoing dispute over debt relief, she told Handelsblatt in an exclusive interview.

“If the creditors are not yet at that stage where they can agree on and respect our assumptions, if it takes them more time to get there, we can acknowledge that and give them a bit more time,” she said (see transcript below).

Ms. Lagarde said that the IMF would be able to lend its name to the next bailout round, but added that an actual payout of funds by the Washington-based lender would continue to be tied to the approval of debt relief.

“The disbursement will only take place once debt relief is clearly articulated by the creditors.”

Christine Lagarde, IMF Managing Director

“So, we can be in a program, but the disbursement will only take place once debt relief is clearly articulated by the creditors,” she said.

Still, the opening could provide a compromise solution for German Finance Minister Wolfgang Schäuble, who had insisted on IMF participation in the next bailout round for the embattled Mediterranean nation. Ms. Lagarde’s comments could offer a way forward when euro zone finance ministers next meet on June 15.

It would also allow Greece 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.

Mr. Schäuble, however, still staunchly resists any debt relief to the ailing southern European country, clashing with the IMF on the issue of the country’s debt sustainability.

What follows is a transcript of questions we asked Ms. Lagarde regarding the Greek debt crisis. A full interview with the head of the IMF will be brought at the end of this week.

Handelsblatt: The Greek debt drama is back in the headlines and, once again, the country is at risk of default. Could the IMF agree on a compromise where it would participate in the rescue program now but would only pay out funds at a later stage?

Christine Lagarde: Ideally, there would be an agreement on two legs of the program that we have been talking about. One leg is the policy measures that the Greeks have now adopted in parliament – but still need to implement. And the other leg is sustainability of the Greek debt. That’s where we have a disagreement as to whether the Greek debt is sustainable. We calculate sustainability on the basis of what we honestly think is feasible for the Greek economy: on the basis of track record, on the basis of forecasts, including those of the European Commission, and on the basis of our experience in dealing with the Greek economy.

And what is your conclusion?

Our conclusion with total intellectual integrity is that the debt relief is needed. Without implying a haircut, but with significant extensions of maturity and deferral of interest payments. That’s our preference and for that to be credible for the markets, for the investors, it needs to be articulated now. It doesn’t have to be delivered upon by the creditors until the end of the program, but it needs to be articulated very clearly now to be a gamechanger. So that markets can say: “That country’s debt is sustainable – therefore we can invest. We can buy their bonds, we can put our money in the country.”

But that’s not where the Europeans are.

If the creditors are not yet at that stage where they can agree on and respect our assumptions, if it takes them more time to get there, we can acknowledge that and give them a bit more time. So, we can be in a program, but the disbursement will only take place once debt relief is clearly articulated by the creditors. We have done it in the past, in similar circumstances, where IMF support was important to help catalyze financing and debt relief from other creditors. We are not inventing a new “à la Greek” approach.

Or a bailout for Wolfgang Schäuble…

No, absolutely not. This approach is a possibility. It was discussed by the Europeans on the 22nd of May. And yes, we can do it. But it’s equally important that the Europeans think about what more they can do for Greece. Can they take the initiative by investing, by getting more structural funds into the country, by trying to catalyze additional investment…

The Europeans complain that the IMFs predictions for economic growth are too pessimistic, which results in a greater need for debt relief.

We are optimistic in assuming an ambitious recovery in productivity, but the overall potential for growth in Greece is limited because it has a rapidly aging population. This is in line with forecasts by the European Commission in its Annual Ageing Report. We are not inventing it, it’s their number, too.

Moritz Koch has been Handelsblatt’s Washington correspondent since 2013. To contact the author: koch@handelsblatt.com

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