IMF, Brussels at loggerheads over debt
The differing views of the European Commission and the International Monetary Fund on the management of the Greek debt and possible measures to lighten it may derail the negotiations on Greece’s next bailout program before they even get started.
In the last couple of days the two organizations have published reports on the Greek debt with very different forecasts. Although both reports make it clear that the debt is not sustainable as is, the IMF has chosen a more aggressive approach to the problem, while the Commission is milder, mirroring the German view which opposes a haircut. German Finance Ministry spokesman Martin Jaeger said on Wednesday that while a debt haircut is out of the question, extending the repayment deadlines would be possible as long as it didn’t constitute an indirect haircut.
It appears that the US has undertaken an intermediary role, as Treasury Secretary Jack Lew met on Wednesday with the governor of the European Central Bank, Mario Draghi, and has meetings lined up on Thursday with his German and French counterparts.
On Wednesday the Commission said in its report that the Greek debt was not sustainable and would require additional interventions but that they would be decided only after the successful completion of the new program’s first assessment and would concern an increase in the grace period for the payment of interest and the extension of the repayment period of the eurozone loans.
Brussels also revised its estimates regarding the course of the Greek economy, expecting a 4 percent contraction in gross domestic product this year and a further contraction of 1.75 percent next year. The Greek budget is now forecast to show a primary deficit up to 1 percent in 2015 and a small primary surplus of 0.5 to 1 percent in 2016.
It also estimates the country’s funding needs from August 2015 to July 2018 at 74 billion euros, with annual needs amounting to an average 10.4 percent of GDP for the period 2015-30.
The IMF said in its report published on Tuesday that the state’s funding needs would amount to 85 billion euros from next month to July 2018 and that the annual funding needs would exceed 15 percent of GDP.
