Disaster for recession-devastated Greece as IMF and eurozone FAILS to agree funding
GREECE could be faced with the prospect of being left penniless after the International Monetary Fund (IMF) and Eurozone finance heads failed to reach an agreement over debt relief.
Lenders lean towards deal with Greece
The need for the two sides to reach an agreement is all-important for Greece as the IMF has made it a condition on its later participation in the latest bailout talks for the southern European country, the third since 2010.
As well, some eurozone governments could make the IMF's participation a condition for new loan payouts.
But the latest meeting which saw deputy finance ministers from the Eurozone and treasury officials who prepare for Eurogroup ministerial meetings met on Monday evening but failed to come to any agreement.
One official told Reuters: "There are still significant gaps on the issue of debt relief. The (deputies group) was never likely to close this gap. It will have to happen at a higher level.”
A group of north European countries led by Germany wants the IMF to join for credibility reasons, believing the European Commission's approach towards Athens can be too lenient.
The same countries, however, also oppose a firm commitment of debt relief for Greece, fearing the disapproval of bailout-weary voters at home.
There are also concerns that once Athens gets a debt deal it will lose the incentive to continue with the necessary reforms.
A second official said: "The IMF wants maximum (debt relief) commitment upfront, while others would prefer to be more precise only in 2018," referring to the end of the third bailout in mid-2018, by which time lenders would have full view of Greek reform completion and the latest economic data.
Greece, meanwhile, is saying it has met its obligations - agreeing more cuts in pensions, for example, and having a relatively large primary budget surplus, not including debt repayments last year.
Debt relief promises are based on agreements made by the Eurogroup in May last year over the grace period for loans helping to reduce financing needs to below 15 per cent of GDP after 2018.
The Eurogroup also said they could consider replacing more costly IMF loans to Greece with cheaper Eurozone credit and transfer the profits made from a portfolio of Greek bonds bought by euro zone national central banks back to Athens.
But all this could happen only if Greece delivers on its reforms by mid-2018 and only if an analysis shows Athens needs the debt relief to make its debt sustainable.
The IMF believes that debt relief, or at least a clear promise of it now, is needed to restore investor confidence in Greece, especially if the country, which has public debt of 197 percent of GDP, is to return to market financing next year.
Greek debt to GDP has actually risen during the various bailout periods, primarily as a result of sinking GDP brought on at least in part by the austerity demanded by lenders.