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| Athens to vote as IMF warns Greece needs extra debt relief above bailout | |
| (about 4 hours later) | |
| The International Monetary Fund has warned that Greece will require far more generous debt relief than is currently on offer from its creditors, as MPs in Athens prepare for a crucial vote on Wednesday on a new bailout plan. | |
| A report by the Washington-based Fund leaked to the news agency Reuters shows that Greece’s public debt is likely to peak at 200% of its national income within the next two years, with the risk that the actual outcome could be even worse. | A report by the Washington-based Fund leaked to the news agency Reuters shows that Greece’s public debt is likely to peak at 200% of its national income within the next two years, with the risk that the actual outcome could be even worse. |
| The debt sustainability analysis comes on the eve of a crucial vote in the Greek parliament when the prime minister, Alexis Tsipras, will be seeking approval for the fresh austerity measures demanded by the eurozone in return for a three-year rescue package worth up to €86bn (£61bn). | |
| The report highlights the Fund’s scepticism about the ability of Greece to meet the ultra-tough budget targets insisted upon by its European creditors, and suggests that Athens should receive a 30-year grace period before it has to start paying off its debts. | |
| Related: Greek bailout: Angela Merkel accused of blackmailing Athens | Related: Greek bailout: Angela Merkel accused of blackmailing Athens |
| Putting into question its involvement in the bailout, the IMF report paints a far darker picture of Greece’s public finances than contained in the blueprint released at the end of the marathon eurozone leaders’ summit on Monday. | Putting into question its involvement in the bailout, the IMF report paints a far darker picture of Greece’s public finances than contained in the blueprint released at the end of the marathon eurozone leaders’ summit on Monday. |
| “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF said, referring to the European Stability Mechanism bailout fund which will be used to bankroll the Greek bailout plan. | “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF said, referring to the European Stability Mechanism bailout fund which will be used to bankroll the Greek bailout plan. |
| The IMF last issued an update on Greece two weeks ago but its new assessment comes after a period when cash withdrawals from banks have been limited to €60 a day, and businesses have been starved of working capital. | |
| The close of banks and the capital controls were, the Fund said, “extracting a heavy toll on the banking system and the economy, leading to a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA”. | |
| Related: Athens parliament: where do MPs stand over the Greek bailout deal? | |
| Two weeks ago, the Fund estimated that Greek debt would peak at 177% of GDP and fall to 142% by 2022. It now believes the debt ratio will still be 170% by 2022 after hitting a peak of 200%. | |
| Throughout the Greek crisis, the IMF has consistently urged deeper debt relief but has met resistance from European finance ministers, who have been unwilling to make their taxpayers pay the cost of a write-down. | Throughout the Greek crisis, the IMF has consistently urged deeper debt relief but has met resistance from European finance ministers, who have been unwilling to make their taxpayers pay the cost of a write-down. |
| Tsipras has also insisted that debt relief must form an important part of the package, buta statement by Eurozone leaders on Monday said only that further measures might be taken provided Greece adhered in full to the reforms demanded by its creditors. | |
| Related: Alexis Tsipras aims to steer eurozone bailout plan through Greek parliament | Related: Alexis Tsipras aims to steer eurozone bailout plan through Greek parliament |
| In the leaked report, the IMF says that Greece’s debts threaten to be unsustainable for decades, and that its financing needs will rise so that they are above the 15% of national income level deemed safe. | In the leaked report, the IMF says that Greece’s debts threaten to be unsustainable for decades, and that its financing needs will rise so that they are above the 15% of national income level deemed safe. |
| The IMF added that unless European creditors agree to an extended grace period, they face the choice of either annual transfers to the Greek budget or “deep upfront haircuts”, the term for the cancellation of part of the debt. | |
| IMF sources confirmed that an updated debt sustainability analysis had been prepared by staff and would be discussed by the organisation’s executive board. | IMF sources confirmed that an updated debt sustainability analysis had been prepared by staff and would be discussed by the organisation’s executive board. |
| Unless the IMF can convince itself that Greece’s debts are sustainable, it would be forbidden by its own rules to put money into a new bailout. The assumption has been that the Fund would provide €16.4bn – around 25% of the total – with the rest coming from the ESM. | Unless the IMF can convince itself that Greece’s debts are sustainable, it would be forbidden by its own rules to put money into a new bailout. The assumption has been that the Fund would provide €16.4bn – around 25% of the total – with the rest coming from the ESM. |
| The European commission, one of Greece’s three creditors alongside the IMF and the European Central Bank, sought to downplay the latest IMF report. A commission spokeswoman said that the IMF and the commission had together signed off on a different debt sustainability document. This was the paper sent to eurozone finance ministers on Saturday and formed the basis for the bailout agreement signed off by eurozone leaders on Monday morning, she said. | |
| Reports of renewed IMF concerns came as Tsipras tried to convince dissident MPs in his own Syriza party to back another round of austerity. | |
| Ahead of the make-or-break vote in Athens’s 300-seat parliament, Tsipras held back-to-back meetings as he attempted to rally support for measures at total variance with the rationale of his radical left party. Creditors have given the Greek government until Wednesday to push controversial refroms, including sales tax increases and pension reforms, through parliament. | |
| Appalled by Tsipras’s volte-face, an estimated 35 Syriza MPs signalled on Tuesday night that they would vote against the measures arguing the “recessionary policies” will only worsen the record levels of poverty and unemployment Greece has already suffered. Panagiotis Lafazanis, the energy minister who heads Syriza’s Left Platform, implored the prime minister to turn down the terms. He called the proposals the work of “economic murderers” intent on destroying Greece. | |
| Related: History shows how the Greek crisis could pan out | Letters | |
| Even if it was endorsed by the 300-seat House with the help of opposition parties – as seems likely – “it will never be passed by the people who effectively will eradicate it with their unity and struggles,” Lafazanis said. | |
| With Tsipras’ own position looking increasingly vulnerable, the country appears headed for fresh political tumult. On Tuesday night government insiders insisted the prime minister had no intention of standing down, saying he would probably attempt to clear the political terrain with a cabinet reshuffle on Thursday. But if losses are heavy, and he loses his parliamentary majority, the young leader might also be forced to from a cross-party government of national unity. | |
| “Political developments inside Syriza will be rapid and dramatic,” said professor Dimitris Keridis who teaches political science at Athens’ Panteion University. | |
| “But we will see a realignment in Greek parliamentary politics in support of the deal which, hopefully, will be cathartic and provide stability,” he said. “Tsipras is being asked to pay for the sins of a previous political class. The great irony is a radical leftist will now have to impose all the reforms that were never passed before, neo-liberal measures that he has always opposed.” | |
| Forebodingly, the neo-nazi Golden Dawn party quickly sought to capitalise on the popular anger the deal is bound to unleash. “Golden Dawn will resist the new memorandum that the government of the left will sign with the complete support of New Democracy, To Potami and Pasok,” said the organisation’s leader Nikos Michaloliakos referring to the opposition parties. “An avalanche of taxes is coming. New annihilating measures that will mainly affect the country’s youth, that will increase unemployment and hit farmers who are the soul of the nation, are coming. From every place in this land the battle will continue … so that the plans of foreign rule are not passed.” |