IMF Departure

Giving Up on Greece

Lagarde-Tsipras2 getty etc
The International Monetary Fund, led by Christine Lagarde, left, abruptly ended talks with Greece on Thursday, as tensions built for the country to leave the euro.
  • Why it matters

    Why it matters

    The IMF is playing hardball with Greece, mounting pressure on the country to agree to a deal to unlock its bailout and avoid insolvency.

  • Facts

    Facts

    • The IMF broke off talks with Greece on Thursday, with its technical team of experts returning to Washington.
    • Greece needs a deal by the next Eurogroup meeting on June 18.
    • The current bailout program expires on June 30, when Greece needs to pay back the IMF €1.6 billion.
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    Audio

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Time appears to be running out for Greece to remain in the euro.

The International Monetary Fund on Thursday withdrew its negotiating team from Brussels, saying there were too many outstanding differences with the Greeks, despite months of negotiation.

“The ball is very much in Greece’s court,” said an IMF spokesman, Gerry Rice. “There are major differences between us in most key areas. There has been no progress in narrowing these differences recently.”

Mr. Rice said the barriers to a deal included pensions, taxes and financing. The IMF, the European Union and Greece’s other major lenders are demanding the Greek government cut spending, which Greece, led by the left-wing Syriza party, has so far refused to do.

On Thursday, the IMF decided enough’s enough. The IMF technical team had returned to the United States but remained “fully engaged” with Athens, the spokesman, Mr. Rice said: “The IMF never leaves the table.”

The surprise move by the Washington-based fund seemed to dash hopes that a solution to the Greek debt crisis could be found this week.

Earlier Thursday, E.U. Commissioner Pierre Moscovici said a debt deal was close and needed a “happy ending.”

Yet, it seems many in Europe are now bracing themselves for talks falling apart.

Jens Weidmann, chief of Germany’s Bundesbank, warned: “The risk of insolvency is increasing by the day.”

A report in Bild, Germany’s biggest selling daily tabloid newspaper, cited sources in the Berlin government saying they are making contingency plans for a possible Greek default.

Greece has been at loggerheads with its creditors for months over unlocking its remaining €7.2 billion in bailout funds.

The election of radical leftist government, led by Alexis Tsipras, in January, unsettled relations between Athens and lenders, the IMF, the E.U. and the European Central Bank. Mr. Tsipras and his Syriza party were swept into office on a pledge to end punishing austerity measures and have pushed unsuccessfully so far for lenders to renegotiate Greece’s crippling debt burden.

But Greece’s creditors have insisted that country stick to previous commitments, such as pension cuts and labor reforms, made as part of the two bailouts, worth €240 billion, that it has received since 2010. The Greek government says the conditions are unsustainable.

“We are offering an outstretched hand, but there is no time to spare.”

German government source

On Wednesday, Mr. Tspiras met with German Chancellor Angela Merkel and French President Francois Hollande. The two leaders urged the Greek leader to reach a deal with technical experts sent by the lenders by this weekend. Such an agreement could then be signed off by euro zone finance ministers, who are scheduled to meet next Thursday in Luxembourg.

The current Greek bailout program runs out at the end of the month, when Athens has to pay back €1.6 billion to the IMF. If it fails to do so, the country will likely default and be forced out of the euro zone.

“We need a durable result by June 18, the meeting of the euro zone finance ministers,” sources close to the German government told Handelsblatt. “We are offering an outstretched hand, but there is no time to spare.”

The IMF is now the one playing hardball.

It is concerned that the Europeans are willing to make too many concessions to keep Greece in the euro zone.

Although Mr. Tsipras assured Ms. Merkel and Mr. Hollande that Greece would stick to any new budgetary commitments, the technical experts have their doubts.

The Greek prime minister has agreed to a primary surplus of 1 percent of 2015, 2 percent for 2016 and 3 percent for 2017, an increase on the figures proposed by his government earlier in the week.

However, those figures don’t mean anything if reforms are not implemented, sources close to the three lenders told Handelsblatt.

European officials are trying to raise the sense of urgency over reaching a deal.

Tsipras watch AP HB
The clock is ticking, Mr. Tsipras. Source: AP

 

 

Speaking at the E.U.-Latin America summit on Thursday, the European Council president, Donald Tusk of Poland, said decisions were needed. “There is no more time for gambling. The day is coming, I’m afraid, that someone says that the game is over,” Mr. Tusk said.

Meanwhile, Jeroen Dijsselbloem, who chairs the group of euro zone finance ministers, told a Finnish newspaper that Greece had no option but to make the tough decisions being demanded by its creditors.

“If the Greek government can’t accept the fact that there are no easy solutions and that the difficult decisions just must be made, it is alone. We can’t help Greece if Greece doesn’t want to help itself,” he told Helsingin Sanomat, a Helsinki newspaper.

All eyes are now on Mr. Tsipras, the Greek prime minister, whose submission to lender demands will alienate his own party. The prime minister would have to sell any deal to the Greek parliament before the end of the month.

There is growing unrest within Syriza, itself an umbrella group of left-wing organizations, that Mr. Tsipras may agree to what they consider an unsavory deal. In a letter to Mr. Tsipras this week, 22 members of his party demanded he stick by his election promises.

On Thursday, 200 members of the communist labor union, PAME, occupied the Greek finance ministry in Athens and hung a massive banner from the window: “We’ve bled enough, we have paid enough! Give the issue back to the people, block the new measures, stop permanent memorandums.”

“We can't help Greece if Greece doesn't want to help itself.”

Jeroen Dijsselbloem, Eurogroup chairman

However, that feeling is not necessarily shared by the majority of Greeks.

A survey by Marc polling group this week found that 50.2 percent of Greeks want the government to accept the creditors’ proposals to prevent the country’s bankruptcy. Only 37.4 percent favor Mr. Tsipras’ continued resistance.

The ongoing uncertainty has caused many in Europe to start looking at the very real possibility that a deal might not be reached in time.

A top German diplomat told Bild: “Even the chancellor knows now that there is not enough time.”

As a result, Ms. Merkel’s advisers are now discussing how to deal with a default, including capital controls for Greek banking clients and a debt cut, the newspaper reported.

Ms. Merkel is also aware that a growing number of members of her own Christian Democratic party and their Bavarian sister party, the Christian Social Union, object to any further aid for Greece.

“We would have to do a lot of work persuading them,” an adviser to the chancellor told Handelsblatt.

 

Jan Hildebrand is deputy bureau chief in Berlin, Moritz Koch is Handelsblatt’s Washington correspondent, Thomas Ludwig is an E.U. correspondent, based in Brussels. Siobhán Dowling is an editor with Handelsblatt Global Edition in Berlin. Gerd Höhler, Handelsblatt’s Athens correspondent, contributed to this report. To contact the authors: hildebrand@handelsblatt.com, koch@handelsblatt.com, ludwig@handelsblatt.com, dowling@handelsblatt.com.

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