IMF prepares for all scenarios, including a Greek euro exit

IMF chief economist Olivier Blanchard on Tuesday expressed hope that there will be an agreement with Greece, stressing that a Greek exit from the eurozone would be particularly painful for the country.

In a statement showing that the International Monetary Fund is preparing for all possible scenarios, Blanchard said a Greek exit would be no walk in the park for the eurozone, but added it would also constitute an opportunity for the bloc to proceed to a fiscal union.

“We clearly are in the middle of negotiations with the Greeks, and we very much want to come to an agreement and we hope we will. Now, what happens if no agreement were reached? A number of things are fairly clear. The first one is that an exit from the euro would be extremely costly for Greece, would be extremely painful; second, the rest of the eurozone is better placed to handle a Greek exit, as the protection walls that did not exist have now been put in place; and third, if the Greek exit does happen I think it is a way [for the Europeans] to appease the markets by proceeding further with the fiscal union; that would certainly be the right move,” Blanchard stated.

His response appeared to associate a Greek eurozone exit with the course of the negotiations, but when questioned by Kathimerini, Blanchard denied that was the case. In a speech at the presentation of the IMF report on global financial prospects, he cited two risks for the global economy: the “political risk” in Greece and the geostrategic risk in Ukraine.

The Fund has curtailed its expectations for Greek growth this year to 2.5 percent from 2.9 percent six months, but held firm on its 2016 growth forecast of 3.7 percent of gross domestic product.

Kathimerini understands that Poul Thomsen, director of the European Department, estimated at Monday’s meeting of the IMF executive council that an agreement between Greece and the representatives of its creditors would not be possible by April 24, the date of the next Eurogroup meeting, which is the Greek government’s target. The managing director of the Fund, Christine Lagarde, is said to have repeatedly asked the members of the council to maintain the confidentiality of the discussion due to the critical stage of negotiations.

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