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16th Oct 2021

IMF: No money for Greece until Europe boosts its firewall

  • Christine Lagarde was wary about committing any IMF money to the Greek bail-out (Photo: European Council)

One of the many loose ends to the Greek bail-out agreed in the early hours of Tuesday (21 February) is the lack of a firm commitment from the International Monetary Fund, pending a decision by eurozone leaders next week to merge the firepower of two bail-out funds.

According to eurozone finance ministers, the IMF is expected to make a "significant" contribution to the €130bn bail-out. German finance minister Wolfgang Schauble on Tuesday spoke of €13bn plus another €10bn from the first Greek programme committed in 2010 that have not been paid out yet.

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But IMF chief Christine Lagarde on Tuesday said "significant means lots of things" and that the contribution will be decided by the board of the institution mid-March. That means the final decision will be taken after an EU summit next week when eurozone leaders are to discuss raising the joint €500bn ceiling for the two bail-out funds - the temporary European Financial Stability Facility (EFSF) and the permanent European Stability Mechanism (ESM).

"The IMF board will have in mind the overall programme but also additional matters such as the proper setting up of a decent firewall comprising of EFSF and ESM as considered today, but not concluded today," Lagarde said.

A bigger firewall is seen as crucial in stemming the sovereign debt crisis which has already threatened Italy and Spain, the third and fourth largest economies in the eurozone. But Germany on Monday indicated it is against the move, citing "improved market conditions" compared to December when EU leaders promised to look at increasing the funds in March.

A compromise solution may be the roll-over of the remaining €250bn in the outgoing EFSF on top of the €500bn strong ESM which should come into force on 1 July, instead of having them both capped jointly at €500bn as the ESM treaty currently specifies.

EU economics commissioner Olli Rehn said he was confident leaders would agree on the move at the 1-2 March summit as it would also allow the IMF to boost its own resources - which in turn could be used to salvage the euro.

"That is good starting point to reinforce the IMF resources on which Christine Lagarde has been calling for from Europe. We share that objective and expect we can make decisions in March so that we can agree on the IMF resources in spring," he said during a press conference on Tuesday.

A meeting of finance ministers from the 20 most industrialised countries in Mexico City this weekend is expected to look at the IMF resources issue, but is unlikely to reach any concrete decisions.

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