The International Monetary Fund has piled pressure on eurozone governments to take bolder action to alleviate Greece’s debt burden, saying that current plans do not go nearly far enough to address the country’s chronic problems.
The fund’s warning shot comes as it weighs whether or not to take part in the latest bailout of Greece — a key decision for some EU nations, such as Germany, that see IMF participation as vital to the credibility of Greek rescue programme.
Debt relief “going well beyond what is currently under consideration” will be needed to make Greece’s finances sustainable, the IMF said in a statement published on Friday.
The fund also repeated its long-standing concern that budgetary targets attached to the €86bn rescue package, which include hitting a 3.5 per cent budget surplus in 2018, are unrealistic.
“Further debt relief will be required to restore sustainability… and it should be calibrated on realistic assumptions about Greece’s ability to generate sustained surpluses and long-term growth,” the fund said in its statement, which is based on the findings of a team of officials that visited Athens earlier this month.
The IMF report is an early salvo in the difficult talks to come over its possible participation in the Greek bailout. The fund is set to take its decision by the end of this year.
The IMF and the EU have clashed over whether the conditions attached to a bailout plan thrashed out last year by EU leaders are realistic, with the fund’s managing director, Christine Lagarde, consistently calling for substantial debt relief.
Eurozone capitals have been far more reticent, firmly rejecting a straightforward writing off of some of Athens’ €248bn debt mountain. Some nations, such as Germany and Finland, have also taken a tough line on other, less far-reaching, options.
The spat led to 11 hours of talks between euro area finance ministers and IMF officials in May, as they hammered out a broad deal on some possible measures, including maturity extensions and lower interest rates.
Delia Velculescu, the IMF’s mission chief in Athens, told reporters that the May agreement is lacking in specifics on key points.
Further discussions will be needed on the measures “to see whether they are sufficient or not”, she said.
Her point was echoed on Friday by Yannis Stournaras, the governor of the Greek central bank, who said that debt-relief measures “need to be specified, quantified and frontloaded”. He also called for a lowering of Greece’ medium-term fiscal targets.
The IMF statement also calls for further urgent reform of the Greek tax and pension systems – demands that have drawn the ire of the leftwing Syriza government, which have accused the institution of taking unduly “extreme” positions.
The fund warns that the country’s tax system contains gaping loopholes that favour the middle class, with more than half of all wage earners in effect exempted from income taxes. Ms Velculescu said that tax evasion “remains endemic in Greece.
Another source of concern comes from the country’s banks, where over 50 per cent of loans are in arrears.
Athens is currently struggling to meet the conditions attached to its latest injection of bailout funds, having met just two of the 15 outstanding milestones needed to release €2.8bn of rescue cash this autumn.
The measures, which were set to be finalised over the summer, cover everything from labour market reforms to the creation of a controversial privatisation fund sequestering Greek assets.
Greece’s finance minister, Euclid Tsakalotos, came under pressure from finance ministers over the slow progress at an EU meeting in Bratislava earlier this month.