I.M.F.'S Push for Greek Debt Relief Is Hard Sell ; Position Pits the Fund against Germany and Other Eurozone Creditors

By Kanter, James | International New York Times, May 18, 2016 | Go to article overview

I.M.F.'S Push for Greek Debt Relief Is Hard Sell ; Position Pits the Fund against Germany and Other Eurozone Creditors


Kanter, James, International New York Times


The International Monetary Fund is ratcheting up demands for Greek debt relief, setting up another potential standoff with European creditors over the country's bailout.

The International Monetary Fund is ratcheting up demands for Greek debt relief, setting up another potential standoff with creditors over the country's bailout and threatening to create more political and economic uncertainty at an already tumultuous time for Europe.

The I.M.F.'s positions open the next act in the long-running Greek debt drama, pitting the fund against Germany and many of the other eurozone creditors. The fund is playing the role of financial cop, steadfast in the belief that Greece will never return to growth if its debt burden isn't sustainable. And Germany is the political pragmatist, leaning on Greece to stick with its austerity commitments lest the country set a bad precedent for future bailouts and provoke a backlash in Germany.

What has changed is the tenor of the debate. The I.M.F. now is taking a firmer stand ahead of a meeting of eurozone finance ministers early next week, by outlining specific demands on the cost and timing of the debt payments. Whether they represent the fund's absolute position or a starting point for negotiations, the demands leave Germany in a difficult spot.

If Germany gives too much, Chancellor Angela Merkel's government will face criticism from the political far-right for forcing taxpayers to bear an even bigger burden of Greece's past profligacy. If it gives too little, the government might not get the support of the I.M.F. for the bailout, which many German lawmakers have made a condition of further support for Greece. Those lawmakers see the I.M.F. as a guarantor of fiscal rigor.

Unless the two sides find common ground -- or agree to further delay the I.M.F.'s participation in the latest bailout -- the situation could soon come to a head. Greece needs the next disbursement of bailout funds to make billions of dollars of debt payments through the end of July. And the stakes are even higher now, as Europe grapples with a renewed wave of terrorism, a migrant crisis, and the uncertainty created by an upcoming vote in Britain over whether to leave the European Union.

The I.M.F. publicly sounded the alarm on Greece's debt load last summer, as creditors hashed out a plan for an 86-billion euro, or $97 billion, bailout, the country's third lifeline since the crisis began seven years ago. Without debt relief, the fund said it would not participate in the latest rescue. To the fund, Greece's debt, some EUR 300 billion, is simply unsustainable.

As the economic and political challenges intensify, the I.M.F. is now staking out more specific turf.

In a presentation last week, the I.M.F. recommended that Greece's interest payments to eurozone creditors would be fixed for up to 40 years at the current rate of 1.5 percent, according to two people who spoke on condition of anonymity because they were not authorized to speak publicly while eurozone officials considered the plans. The payments would also be deferred for even longer.

The restructuring plan will be a tough sell. There is a sense among the creditors that the I.M.F. is being overly pessimistic about Greece's outlook, to help drum up support for debt relief. While European officials have been playing up signs that Greece is bottoming out, the I. …

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