Protestors shout slogans against the visit of the German finance minister
Greece’s second bailout is €11bn short of cash, and eurozone governments need to fill almost half of that gap before the end of the year, the International Monetary Fund reported in its quarterly assessment of the Greek rescue.
In addition, the IMF said that in order to bring Greek debt levels back to a manageable level, Athens must be relieved of debts it owes to eurozone governments totalling 4 per cent of economic output – or about €7.4bn – within the next two years.
Eurozone governments may be forced to write off even bigger chunks of their bailout loans to Athens unless the Greek economy begins to turn round, the IMF said in its most clear call yet for these governments to accept big losses on their Greek aid.
“If investors are not persuaded that the policy for dealing with the debt problem is credible, investment and growth will be unlikely to recover as programmed,” the IMF said in the 195-page report. “Should debt sustainability concerns prove to be weighing on investor sentiments even with the framework for debt relief now in place, European partners should consider providing relief that would entail a faster reduction in debt than currently programmed.”
Almost all Greek sovereign debt is owed to eurozone governments. It is expected to peak this year at 176 per cent of economic output.
The IMF’s call for eurozone governments to accept losses on their bailout loans to reduce Greece’s debt load is not new, having led to a weeks-long stand-off between the fund and Brussels when the Greek programme was last overhauled in December.
But the new report is the first time the IMF has raised the prospect of writedowns even larger than those agreed in December, and comes two months before Germans go to the polls, potentially causing problems for Angela Merkel, chancellor.
Ms Merkel and other members of her ruling Christian Democratic Union party have insisted in recent weeks that there would be no “haircuts” on their bailout loans.
Wolfgang Schäuble, the German finance minister, gave warning during a recent visit to Athens that the Greek government should “not continue this discussion”.
On Wednesday, German officials rejected the need for further debt relief, saying the most recent report by international monitors had found that Athens was hitting all its bailout targets.
Martin Kotthaus, the German finance ministry spokesman, said reform measures taken in recent months had strengthened confidence in financial markets, and calls for another Greek programme would undermine that confidence.
But Carsten Schneider, budget spokesman for the opposition Social Democratic party, said that the IMF had “told the bitter truth yet again”.
He said that the financial situation in Greece was the result of the “failed policy that has been decisively pursued” by Ms Merkel.
“Unlike the IMF, she does not have either the strength or the courage herself to recognise this failure,” he added, urging that the IMF should remain part of the troika in the future, even if it were no longer participating financially.
The issue of accepting losses on existing bailout loans – at the same time as being asked to provide additional aid – is politically combustible in several other northern eurozone countries as well, where anti-bailout sentiment is running high.
Greece debt crisis
Greece struggles on with drastic austerity as eurozone leaders continue to argue over how to help the country cope with its debt mountain
Eurozone officials have insisted they will not discuss further debt relief for Greece until April 2014 at the earliest, when statistics officials are due to rule on whether Athens has for the first time reached a balanced budget, when debt payments are not counted – a so-called primary surplus.
EU officials have indicated there may be ways to fill the immediate cash shortage – which the European Commission has estimated at €3.8bn for 2014, although the IMF puts it at €4.4bn – without forcing eurozone lenders to put additional cash into the €172bn joint EU-IMF programme.
One EU official said there might be leftover funds intended to recapitalise Greece’s banking sector that might no longer be needed and could be reprogrammed, for example. But the IMF report makes clear that the funding gap, which opens up in August 2014, goes beyond next year and into 2015, where it estimates Greece will need an additional €5.6bn.
The issue of closing the 2014 gap is essential for the IMF, which is barred from making its quarterly disbursements unless Greece has financing in place for an entire year. As of this August, Greece will have financing in place for only 11 months, and the report says the issue must be addressed during the bailout’s next quarterly review, expected in late September.
Although the report does not address the 2015 shortfall, IMF officials have been urging eurozone leaders to fill the €5.6bn gap for that year at the same time.
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Greece’s troubled second bailout
March 2012 – After less than two years, eurozone officials agree that Greece’s first €110bn bailout was not big enough and sign on to a second €172bn rescue, which includes history’s largest sovereign debt default.
May 2012 – Greek elections result in the stunning second-place finish by the radical anti-bailout Syriza party, throwing the county into political turmoil and opening a public debate on “Grexit”.
June 2012 – Centre-right New Democracy is able to secure a victory in a second election, but the political upheaval throws the bailout off course.
November 2012 – Eurozone officials agree to overhaul the second bailout by extending it for two years, through 2016. But an agreement is held up by a stalemate between the IMF and eurozone finance ministers over how much debt relief to give Athens.
December 2012 – After weeks of negotiations, the IMF and eurozone agree to a staged debt relief plan where the EU will lower its interest rates on bailout loans immediately and revisit the debt issue once Greece reaches a primary surplus. They set a debt target of “substantially below” 110 per cent of GDP by 2022.
June 2013 – IMF issues a self-criticism of the first Greek bailout, saying Athens should have defaulted on its sovereign debt much earlier and blaming European officials for resisting such a move.
July 2013 – IMF issues its quarterly report on Greece suggesting even the debt relief agreement reached in December may be too little.
August 2013 – Because of a financing gap caused by slippages in Greece’s privatisation programme and the failure of eurozone central banks to roll over Greek bonds they hold, the bailout no longer has 12 months of financing in place, barring the IMF from disbursing any additional funds.
September 2013 – EU and IMF monitors are due back in Athens for the next quarterly review. IMF officials insist the 2014 financing gap of about €4bn must be filled by eurozone lenders as part of these talks.
April 2014 – Eurostat scheduled to review Greece’s budget numbers, which are likely to show Athens for the first time has reached a primary budget surplus. Eurogroup expected to take up issue of further debt relief as a result.