IMF, Germany at odds on Greek debt relief
IMF threatens to withdraw support from bailout deal unless debt relief is provided - no 'haircuts', but maturity extensions required

The International Monetary Fund has threatened to bow out of Greece’s bailout unless creditors agree to a debt relief program.

The demand sets up a face-off between the IMF and Germany. On Monday, after the bailout deal was concluded, German Chancellor Angela Merkel told the media that debt restructuring for Greece was "out of the question". There was no reply from the German government as of Wednesday morning.

On Tuesday, a senior IMF official told reporters in Washington that debt relief is an essential provision for the organization to support the deal.

The IMF plays a crucial role in supervising the administration of the bailout in Greece. A withdrawal of the organization's support would thwart the accord, which took five months to reach.

Speaking to the Greek nation in a televised interview late on Tuesday, Greek Prime Minister Alexis Tsipras said that the agreement included an eventual restructuring of Greece's €300 billion ($330.2 billion) debt, which amounts to about 175 percent of the country's GDP.

After the IMF official's remarks on Tuesday, the organization published a revision of its Debt Sustainability Analysis report. This described Greece’s public debt burden as "highly unsustainable” and continued:

"This is due to the easing of policies during the last year, with the recent deterioration in the domestic macroeconomic and financial environment because of the closure of the banking system adding significantly to the adverse dynamics.

"The financing need through end-2018 is now estimated at €85 billion ($93.6 billion) and debt is expected to peak at close to 200 percent of GDP in the next two years, provided that there is an early agreement on a program.

"Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far."

The IMF report ruled out debt ‘haircuts’, which is what Germany fears most, as it is Greece's largest creditor, but added:

"A case could be made for changing from the stock-of-debt framework agreed in November 2012 to a framework focused on the path of gross financing needs. There could be a significant further extension of the maturities of the entire stock of European debt, in the form of a doubling of grace and repayment periods."

Greece's bailout demands extensive economic reforms, which must be passed by the parliament in Athens on Wednesday, if the agreement is to be implemented.

The agreement must then be ratified by eurozone member state parliaments. Finnish and Slovakian lawmakers have already warned that the accord will not pass their national legislatures.

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Last Modified: 2015-07-15 12:14:52
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