Tuesday

26th May 2020

EU-IMF dispute on Greek debt complicates bailout

  • German finance minister Schaeuble, IMF director Lagarde and Eurogroup president Dijsselbloem. EU and IMF at are odds over how to relieve Greece of part of its debt. (Photo: Council of the EU)

Divergence between the EU and the International Monetary Fund (IMF) could make a deal to unblock up to €11 billion of aid for Greece more difficult, despite the Greek authorities doing what is required from them.

Two parallel countdowns are ongoing to allow eurozone finance ministers to agree the disbursement of a new loan on Tuesday (24 May).

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The first process is the vote, planned for Sunday evening, of a set of measures by the Greek parliament to meet the demands by Greece's creditors - the European Commission, the European Central Bank, the European Stability Mechanism and the IMF.

The second one, far from the public eye, involves EU institutions, eurozone countries and the IMF in trying to design a plan to relieve Greece of part of the cost of its huge public debt.

For the €11-billion deal to be concluded at Tuesday's Eurogroup meeting, the two processes need to meet, at least in principle.

"A global agreement is difficult but not out of reach," a eurozone official said earlier this week.

The IMF, which is bound by its rule to lend money only to countries whose debt is sustainable, says that Greek debt is not and wants the EU to agree to debt relief measures.

It says it will quit the Greek programme if there is no agreement on debt.

"For the IMF to participate in the program with financing, both credible policies and substantial debt relief will be needed,” the Washington-based institution's spokesman said on Thursday.

EU institutions say that the Greek debt, even if high, is sustainable in the long term. Some member states, mainly Germany, say that in any case, no debt relief should occur before Greece has implemented all of the three-year bailout programme.

At the last Eurogroup meeting, on 9 May, finance ministers, including Germany's Wolfgang Schaeuble, for the first time set out guidelines for debt relief in three steps - in the short, medium and longer term.

But the IMF, although represented at the meeting, did not formally endorse the plan.

According to the Bloomberg news agency, the fund is now proposing that Greece is exempted until 2040 from repaying the European loans it received since the first bailout in 2010, and that interest rates are capped to 1.5 percent.

While the Europeans said that debt relief should imply no haircut (a reduction of the debt with losses for lenders), no fiscal transfer from other countries to Greece and no cost for eurozone member states, "it's not sure they [the IMF] respect these political constraints," an EU source told EUobserver.

"It will be very difficult to agree," the source said.

'Everyone's interest'

Talks between the IMF and the EU will continue all weekend, including at the highest level at a G7 meeting in Japan.

Speaking from the meeting on Friday, EU finance commissioner Pierre Moscovici assured that a deal was "very, very close".

"I am confident and hopeful that we can reach a positive conclusion because it is simply in everyone's interest to do so," he told journalists.

Meanwhile, the Greek government is trying to fulfil its part of the deal.

It tabled a 700-page so-called omnibus bill this week that will introduce a fiscal break mechanism to ensure that new budget cuts and structural reforms will be made if public finances go off track in the future.

The mechanism was requested last month by the creditors, mainly the IMF.

The bill also includes the creation of a privatisation fund and measures to help banks to sell non-performing loans.


The bill comes in addition to a package to reform the Greek pension and income tax systems that was adopted by the parliament on 8 May, just before the previous Eurogroup, and which is considered to be have been approved by the creditors.

If the bill is adopted on Sunday evening and considered as compliant with the creditors' demand, the Eurogroup could decide that Greece has met all conditions for the disbursement of the new tranche of aid.

But the disbursement itself would depend on an EU-IMF agreement on debt.

Political decision

The decision is up to finance ministers only, and they could bypass the IMF. The fund would then decide whether it wants to stay in the programme.

The IMF's involvement, however, is a condition for several countries like Germany, Finland or the Netherlands to agree to the disbursement.

On Thursday, Germany's Schaeuble said that he was confident there would be no "new crisis in and around Greece and that all parties would “come to a reasonable result".

Eurozone deputy finance ministers will meet Monday afternoon to prepare the statement that ministers will agree the day after.

The eurozone working group "will try to arrive at draft conclusions with dozen of brackets" that ministers will have to fill, the eurozone official said.

The decision will be highly political.

"I don't know if the IMF will on board. I have more hope than concrete expectations," he said.

"Somehow the IMF needs to be mentioned and involved," another source said.

Greece and EU make progress on bailout deal

Athens and EU institutions agreed on an economy package to unblock aid that could go beyond €10 billion. Agreement on future contingency measures and IMF support still lacking.

Greece's creditors set out debt relief roadmap

Eurozone finance ministers agree for the first time to consider measures to ease the burden of the Greek debt. An agreement for a next payment of bailout support is expected on 24 May.

EU and IMF agree debt relief for Greece

Greece's creditors will take measures to reduce the cost of debt repayment and for the first time say debt could be reduced in the future. They also decided a €10-billion new loan.

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