IMF agrees with Athens that Greece needs debt relief

ATHENS — The International Monetary Fund, a big Greek creditor, on Thursday conceded a point the Athens government has long made: Without some reduction in the country’s staggering debt burden, Greece has little hope of a sustainable economic recovery.

It was a significant acknowledgment and an indication that if or when bailout talks resume, Greece could get debt relief of 300 billion euros, or about $330 billion. This may not be a relief granted to the leftist government of Prime Minister Alexis Tsipras.

The IMF said on Thursday that the five-month-old government bears the responsibility for having worsened Greece’s economic situation so much that a new aid program of 50 billion euros was now necessary.

The organization did not mention Tsipras or his party by name, but said the country’s economy and finances had deteriorated sharply due to government policies since late last year. Mr. Tsipras took office in January.

The report is likely to stoke tensions with Greece’s European creditors at a critical time, just ahead of a national Greek referendum on Sunday on whether to agree to a bailout that Mr Tsipras opposed – in part. because it does not contain debt relief. By essentially concluding that any new bailout deal for Greece must include debt relief, the IMF, intentionally or not, has increased the pressure on Europe to recognize this point.

While the IMF would be just one of the negotiating parties on behalf of creditors, eurozone lenders have made it clear that they value the organisation’s expertise and advice, even if they are not obliged to follow its recommendations.

Greek Finance Minister Yanis Varoufakis said Thursday he would resign immediately if Greeks vote yes. Mr Varoufakis, who even before the election of the left-wing government had argued that much of Greece’s mountain of debt should be written off, was a key player in months of talks that led to the current stalemate.

The IMF appears to have little patience with the Greek government, which this week became the first developed country to actually default on a loan from the fund.

But patience is also running out among other eurozone countries, whose taxpayers have loaned Greece more than 130 billion euros. On Thursday, the leader of the group of eurozone finance ministers, Jeroen Dijsselbloem, suggested that Greeks should vote yes on Sunday for future bailout talks to progress.

“The Greek government is rejecting everything with the suggestion that if you vote no you will get a better or less tough or friendlier package,” Mr Dijsselbloem said. “This suggestion is simply wrong.”

If Greeks were to vote yes, however, it would signal their desire to accept the bailout package with austerity conditions that Mr Tsipras has opposed. As a de facto repudiation of Mr. Tsipras and his government’s negotiating strategy, a yes could lead not only to the resignation of Mr. Varoufakis, but also to the withdrawal of many other members of the government of Syriza, the leftist party. of Mr. Tsipras — and possibly the departure of Mr. Tsipras himself.

Analysts at Eurasia Group, a consultancy, said in a note to clients on Thursday: “Creditors want a change of government in Athens, and they see this Sunday’s referendum as their first opportunity to achieve that.”

The IMF on Thursday denied trying to influence Greek policy and said the timing of the report was unrelated to Sunday’s referendum.

A senior IMF official said the organization released the report on Thursday because material was leaking. “I don’t see how we can be perceived as interfering with anything,” the official said on condition of anonymity in a telephone briefing with reporters.

Mr Tsipras’ government urged Greeks this week to oppose the referendum. Although written in potentially confusing language, the referendum effectively asks whether the nation is ready to accept more austerity in exchange for the billions of euros the country needs to regain its solvency.

But after a remarkable series of twists and turns in negotiations with creditors this week, the proposal on which the Greeks will vote is no longer on the table. The 240 billion euro rescue package on which the offer was based expired on Tuesday evening.

Nonetheless, in televised remarks and interviews broadcast on seemingly continuous loops by Greek TV stations, Mr. Tsipras and Mr. Varoufakis urged Greeks to vote no to the package. Such an outcome, they said, would give the government a stronger hand in the negotiations.

In an interview with Bloomberg Television on Thursday, Mr Varoufakis said he would not remain finance minister if the yes vote prevailed, although he said he would help his successor lead Greece out of its crisis. the debt. He added that he would “rather cut off” his arm than sign a new deal with creditors that does not restructure Greece’s debt.

In many ways, Mr. Tsipras’ negotiating tactics have always been about achieving his government’s overarching goal of reducing Greece’s debt burden, which Mr. Varoufakis says is unsustainable.

Even before Syriza took office, many economists, and European leaders themselves, recognized that Greece could not repay its mountain of debt – which amounts to around 185% of annual economic output – unless the creditors return part of it.

While international financial institutions wrote off billions of Greek debt in 2012, today most Greek debt is held by European taxpayers. And while European leaders admit that Greece may never be able to repay them in full, they resist imposing losses on their own people.

The IMF itself had previously urged European governments to reduce some of Greece’s debt.

And in 2012, when Greece was still in the throes of a recession, the European Union promised to provide further debt relief to Greece as long as it met budgetary targets and kept its promises to make changes to the system. economy as part of its bailout program. But last year, after Greece appeared to be on the mend, leaders said they were no longer sure Greece needed the help.

On Thursday, however, the IMF said the policies pursued by Mr Tsipras and the economy’s slide back into recession after he took office in January had pushed Greece in the wrong direction.

The IMF report accused the government of failing to enact the economic changes required under the bailout package, including better tax collection, cracking down on corruption and creating an easier place to do business. in Greece. Had the government followed through, the IMF said, “no further debt relief would have been necessary”.

At the very least, the IMF added, Greece will have to delay paying off much of its debt. More likely, its creditors will have to write off some of the debt and absorb the losses, by taking a “haircut” on the debt.

A Greek government spokesman, Gavriil Sakellaridis, instead of responding to IMF criticism on Thursday, noted that the report agreed with the government that Greece needed debt relief. The report, Mr Sakellaridis said, “has fully vindicated the Greek government, both in terms of its view on the unsustainability of Greek debt and in terms of its insistence that any new agreement with the creditors must definitely include debt restructuring or downgrading”.

Of the 50 billion euros in relief cited by the IMF, 36 billion euros should come from other countries in the euro zone. And those numbers may be too low, as the report was prepared before the situation in Greece deteriorated even further this week. The government closed Greek banks on Monday to stem an outflow of deposits, and on Tuesday it missed repayment of a loan of around 1.6 billion euros to the IMF.

Plans to sell public assets, already behind schedule when the Tsipras government took office, are at even greater risk, the IMF said. Revenue from state asset sales stood at just 3.2 billion euros at the end of March, the IMF said, well below the target of 50 billion euros by the end of March. the year.

The new government has imposed new conditions on privatizations that will make it even more difficult to sell assets such as airports or real estate. And one of the main asset classes – stakes in the country’s biggest banks – has become almost worthless due to the question of whether the banks can survive.

“Together with very high existing debt, these new financing needs make debt dynamics unsustainable,” the IMF said in the report.

A senior IMF official, who spoke to reporters on Thursday on condition of anonymity, acknowledged that Greece needed a “respite”. But that would likely only happen if Athens and other European governments make tough decisions.

“We ask the Greeks to do very difficult things,” the official said. “We ask Europeans to do difficult things too.”

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