Greece will face renewed fears that it will exit the euro area unless the nation’s government and European creditors come up with a credible plan to make the country’s debt sustainable, a top IMF official said.
“We have yet to see a credible plan for how Greece will reach the very ambitious medium-term surplus target that is key to the government’s plans for restoring debt sustainability,” Poul Thomsen, head of the International Monetary Fund’s European Department, wrote in a blog post on Thursday. “A plan built on over-optimistic assumptions will soon cause Grexit fears to resurface once again and stifle the investment climate.”
Greece will need both reforms to its pension system and debt relief from its European creditors to bring its debt levels under control, said Thomsen, who oversees the IMF’s Greek bailout program. Without pension reforms, the country won’t be able to reach its goal of a primary surplus of 3.5 percent of gross domestic product, he said.
Greek Prime Minister Alexis Tsipras has said on several occasions, most recently this week, that any further pension cuts are a “red line” for his government. The fund’s insistence on additional savings from the pension system, in the context of belt-tightening measures of as much as 5 percent of Greek gross domestic product, or about 9 billion euros ($10 billion), may put it on a collision course with Greece’s anti-austerity coalition. Farmers plan to take to the streets of Athens Friday protesting the government’s pension-system overhaul plans.
“Ultimately a program must add up: the combination of reforms plus debt relief must give us and the international community reasonable assurances that by the end of Greece’s next program, after almost a decade of dependence on European and IMF assistance, Greece will finally be able to stand on its own,” Thomsen said.
Greece has a 28 billion-euro loan program with the IMF that expires in March, but the Washington-based fund hasn’t released any funds from the program since June 2014.
Euro-area governments are reviewing the country’s progress under an 86 billion-euro bailout negotiated last year. The IMF has said it would consider a fresh loan once the review began. [Bloomberg]