IMF pressuring eurozone to ease Greek bailout terms, reports WSJ

The International Monetary Fund is putting pressure on the eurozone to ease Greece?s bailout terms, according to a report in the Wall Street Journal.

?The IMF pressure – which officials said has been clear in private discussions among Greece’s official lenders – comes in response to mounting evidence that Greece’s deep recession has thrown the country’s bailout program woefully off track from targets set earlier this year,? according to WSJ?s Matthew Dalton and Costas Paris.

The IMF wants Greece?s debt to be reduced to ?sustainable? levels before it releases more funding as part of the Greek program but this involves options which some eurozone countries are not comfortable with.

The IMF now wants to see the government debt ratio close to 100% of gross domestic product in 2020, when Greece is supposed to have finished repaying EUR33 billion in loans to the IMF, officials told the WSJ. This is 20% percentage points lower than when the IMF and its European partners agreed on the second Greek bailout in February.

But with Greece in deep recession, it would need a substantial change to the Greek program to put the country?s debt on a sustainable path.

?The mildest would be another cut on the interest rate Greece must pay on the bailout loans from euro-zone governments. Greece is set to pay over EUR39 billion in interest payments from 2012 through 2014,? reports the WSJ.

Another option is for eurozone countries to accept haircuts on the bilateral loans they have made to Greece as part of the package.

?The more politically controversial options include having the European Central Bank and the euro zone’s national central banks accept a 30% reduction in their Greek bonds, which have a face value of about EUR50 billion, said one official familiar with the discussions,? write Dalton and Paris.

Another option is for the European Stability Mechanism to take on the 50 billion euros that is destined for the recapitalization of Greek banks, which until now has been recorded as state debt.

For this option, though, the eurozone has to wait until September 12, when Germany?s constitutional court will rule on whether the ESM is compatible with the country?s legislation.

Until then, the IMF and its eurozone partners will wait to see if Greece lives up to its bailout commitments.

“If it’s another case of false Greek promises,» an official familiar with the talks told the WSJ, «what will happen is that the existing funding will stop and Greece will find itself outside the euro zone.”