Greece embroiled in bailout row with IMF

The Greek government responded by asking the IMF whether "seeking to create default conditions in Greece, shortly ahead of the referendum in Britain, is the fund's official position".

In a letter to Greek prime minister Alexis Tsipras on Sunday, IMF managing director Christine Lagarde tried to assure him that "any speculation that IMF staff would consider using a credit event as a negotiating tactic is simply nonsense".

She added however that her institutions would support only a "credible" plan "based on realistic assumptions".

"We are still a good distance away from having a coherent programme," she wrote.

Lagarde also wrote that the IMF "conducts its negotiations in good faith, not by way of threats" and that it did not "communicate through leaks".

"Successful negotiations are built on mutual trust, and this weekend’s incident has made me concerned as to whether we can indeed achieve progress in a climate of extreme sensitivity to statements of either side," she wrote.

The origin of the WikiLeaks transcript detailing a 19 March teleconference between Poul Thomsen, the head of the IMF's European Department, Delia Velculescu, the IMF mission chief for Greece, and IMF official Iva Petrova is unknown. But the wrong spelling of Velculescu's name, written Velkouleskou in the leak as if transcribed from another alphabet, raised suspicion of Greek involvement.

In the transcript, Thomsen is quoted as saying that the Greek authorities were "not going to come around to accept" the IMF's views on the need for deeper reforms to implement the current bailout programme.

He is also quoted as saying that in the past, the Greeks did what was expected of them "when they were about to run out of money seriously and to default".

"Possibly this is what is going to happen again," Thomsen added, according to the transcript.

"In that case, it drags on until July, and clearly the Europeans are not going to have any discussions for a month before the Brexits [sic] and so, at some stage they will want to take a break and then they want to start again after the European referendum," he said.

Greeks "are not close to the event, whatever it is", he is quoted as saying to explain why talks on the first review of the programme have not been concluded yet.

According to WikiLeaks, Thomsen also said that another possibility to make Greeks yield would be to force a discussion on debt relief in Germany.

In this case, the transcript says, the IMF would put the choice to German chancellor Angela Merkel.

"Basically we at that time say "Look, you Mrs Merkel you face a question, you have to think about what is more costly: to go ahead without the IMF, would the Bundestag say The IMF is not on board? Or to pick the debt relief that we think that Greece needs in order to keep us on board? Right? That is really the issue," Thomsen is quoted as saying.

The issue of debt relief has been a point of divergence between the IMF and the EU, especially Germany.

The IMF considers that some debt relief is necessary to support Greece's long-term financial perspectives, but it says that strong reforms, especially on pensions, are necessary conditions to limit the scale of the relief.

"I have been consistent in pointing out that, if it were necessary to lower the fiscal targets to have a realistic chance of them being fully met, there would be an attendant need for more debt relief," IMF chief Lagarde wrote in her letter to Tsipras on Sunday.

On the other hand, Germany is wary of debt relief and the EU is less demanding on pension reforms than the IMF. The divergences have been pointed out for a long time by the Greek government as a reason for the slow pace of the discussions.

In the transcript, IMF mission chief in Greece Velculescu is quoted as saying that the Greeks "don't have any incentive" because "they know that the commission is willing to compromise, so that is the problem".

"In a way we went into this negotiation with the wrong strategy.

"We didn't negotiate with the commission and then put to the Greeks something much worse, we put to the Greeks the minimum that we were willing to consider and now the Greeks are saying: 'Well we are not negotiating.'"

So far, the IMF is not even formally part of the third Greek bailout agreed last year. It is waiting for the conclusion of the first review to take a decision. That is why Thomsen says Germany could be pressured to accept the fund's conditions.

In a blog post on the IMF website in February, Thomsen warned, not for the first time, that "difficult choices [were] to be made".

"No amount of pension reforms will make Greece’s debt sustainable without debt relief, and no amount of debt relief will make Greece’s pension system sustainable without pension reforms," he wrote.

"This implies an inverse trade-off between ambition of reforms and strength of debt relief.

"We can certainly support a programme with less ambitious reforms, but this will inevitably involve more debt relief," he wrote, stressing the debate that exists between Greece's lenders.

At the last Eurogroup meeting, on 7 March, its president Jeroen Dijsselbloem said that debt relief would be on the table "in the near future" if Greece delivered a primary budget surplus.

The next Eurogroup meeting will take place on 22 April, the week after the IMF spring meetings in Washington, which EU finance ministers will attend. IMF and EU officials said they would try to agree on the conditions to conclude the review.

In the meantime, Lagarde said in her letter she had decided to "allow" the IMF team to return to Athens to continue the discussions, despite the weekend row.