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I.M.F.’s Insistence on Greek Debt Relief Adds to Complexity of Talks I.M.F.’s Insistence on Greek Debt Relief Adds to Complexity of Talks
(about 1 hour later)
BRUSSELS — The International Monetary Fund’s declaration that it would not back a new bailout for Greece unless the pact substantially reduces the debt burden on Athens clouded the prospects on Wednesday for quick approval of an aid plan. The I.M.F. move also reopened a debate that European leaders thought they had settled during contentious negotiations last weekend. BRUSSELS — The International Monetary Fund’s declaration that it would not back a new bailout for Greece unless the pact substantially reduces the debt burden on Athens clouded the prospects on Wednesday for quick approval of an aid plan. The I.M.F. move also reopened a debate the European leaders thought they had settled during contentious negotiations last weekend.
The I.M.F.’s public signal on Tuesday that it would continue to press for additional cuts in Greece’s debt repayments put it in conflict with the country’s European creditors. The deal announced Monday morning stated that the creditors would not forgive any Greek debt and offered only a general assurance of further discussions about reducing annual debt payments by stretching out payment periods or reducing interest rates.The I.M.F.’s public signal on Tuesday that it would continue to press for additional cuts in Greece’s debt repayments put it in conflict with the country’s European creditors. The deal announced Monday morning stated that the creditors would not forgive any Greek debt and offered only a general assurance of further discussions about reducing annual debt payments by stretching out payment periods or reducing interest rates.
The fund’s decision to go public with its stance suggested that the draft agreement would be only the starting point for further negotiations about the sustainability of Greece’s debt and the willingness of its lenders to recognize they might not get all their money back.The fund’s decision to go public with its stance suggested that the draft agreement would be only the starting point for further negotiations about the sustainability of Greece’s debt and the willingness of its lenders to recognize they might not get all their money back.
It also came on the eve of a crucial vote in the Greek Parliament, scheduled for Wednesday night, on whether to approve central elements of the deal with the creditors, including tax increases and pension cuts. It also came on the eve of a crucial vote in the Greek Parliament, scheduled for Wednesday night, on whether to approve central elements of the deal with creditors, including tax increases and pension cuts.
The Greek government gave no immediate response to the I.M.F.’s position. Prime Minister Alexis Tsipras seemed likely to have the votes necessary to pass the measures in Parliament, but there were indications that the fund’s stance would inject new vigor into the opposition and would intensify the political challenge facing Mr. Tsipras in keeping his left-wing Syriza party united on the issue. Prime Minister Alexis Tsipras seemed likely to have the votes necessary to pass the measures in Parliament, even though he said in an interview on state radio on Tuesday night that he considered the agreement flawed. He said the alternative — Greece’s being forced out of the eurozone — was the greater evil.
“There are new facts that need to be taken into account,” Zoe Konstantopoulou, the speaker of Parliament, said. “It’s the duty of Parliament not to allow this blackmail against the government and Parliament to be completed,” she added, referring to the demands of creditors for a first set of austerity measures to be voted into law by Wednesday night. “I take full responsibility for mistakes and for signing a document that I don’t believe in but must implement,” Mr. Tsipras said.
Dimitrios Papadimoulis, a lawmaker from Mr. Tsipras’s left-wing Syriza party who is close to the prime minister, said that the fund’s position could be helpful in the long run but did not make Wednesday’s parliamentary vote any less urgent.
There were also indications that the I.M.F.’s stance might inject new vigor into the opposition and would intensify the political challenge facing Mr. Tsipras in keeping his Syriza party united on the issue.
“There are new facts that need to be taken into account,” Zoe Konstantopoulou, the speaker of Parliament, said.
“It’s the duty of Parliament not to allow this blackmail against the government and Parliament to be completed,” she added, referring to the demands of creditors for a first set of austerity measures to be voted into law by Wednesday night.
Yannis Dragasakis, the deputy prime minister, told Greek radio on Wednesday that a deal was “not yet certain.” Greece has long demanded that cutting its debt load be part of any accord.Yannis Dragasakis, the deputy prime minister, told Greek radio on Wednesday that a deal was “not yet certain.” Greece has long demanded that cutting its debt load be part of any accord.
The I.M.F.’s position highlighted a rift between European countries. Some, including Germany, are adamantly against writing off any of Greece’s debt of more than 300 billion euros, or about $330 billion. Others, including, France, are more open to that idea and say they believe Greece’s troubles will not be solved until its debt payments are reduced to a realistic and sustainable level. The I.M.F.’s position highlighted a rift between European countries. Some, including Germany, are adamantly against writing off any of Greece’s debt of more than 300 billion euros, or about $330 billion. Others, including France, are more open to that idea and say they believe Greece’s troubles will not be solved until its debt payments are reduced to a realistic and sustainable level.
The French government, which has played a central role in efforts to keep Greece in the eurozone, welcomes the fund’s comments.The French government, which has played a central role in efforts to keep Greece in the eurozone, welcomes the fund’s comments.
“The I.M.F. is saying the same thing that we are,” Michel Sapin, the French finance minister, told BFM television on Wednesday. “That we have to help Greece, but that we can’t do it if we maintain the same repayment burden on the Greek economy.”“The I.M.F. is saying the same thing that we are,” Michel Sapin, the French finance minister, told BFM television on Wednesday. “That we have to help Greece, but that we can’t do it if we maintain the same repayment burden on the Greek economy.”
Mr. Sapin played down the risk that the fund’s stance would torpedo an agreement, saying the bailout deal this week had opened the way to negotiating the details, “including a restructuring of the debt.” Mr. Sapin played down the risk that the fund’s stance would derail an agreement, saying the bailout deal this week had opened the way to negotiating the details, “including a restructuring of the debt.”
“But the French will get their money back,” Mr. Sapin added. “You don’t lose your capital because you extend the repayment period on the interest a little. If Greece had left the euro, we would have lost everything.”“But the French will get their money back,” Mr. Sapin added. “You don’t lose your capital because you extend the repayment period on the interest a little. If Greece had left the euro, we would have lost everything.”
Wolfgang Schäuble, the German finance minister and one of the most hard-line opponents of debt relief for Greece, indicated on Tuesday that there was continued resistance in the German government to the deal hammered out over the weekend, and a willingness to consider whether it might be better for Greece to leave the eurozone.Wolfgang Schäuble, the German finance minister and one of the most hard-line opponents of debt relief for Greece, indicated on Tuesday that there was continued resistance in the German government to the deal hammered out over the weekend, and a willingness to consider whether it might be better for Greece to leave the eurozone.
“There are many people, also in the German federal government, that are pretty well convinced that would be a much better solution for Greece and the Greek people,” Politico quoted Mr. Schäuble as saying.“There are many people, also in the German federal government, that are pretty well convinced that would be a much better solution for Greece and the Greek people,” Politico quoted Mr. Schäuble as saying.
A new bailout for Greece would require the approval of lawmakers in Germany and in a number of other countries with strong opposition to cutting Greece’s debt.A new bailout for Greece would require the approval of lawmakers in Germany and in a number of other countries with strong opposition to cutting Greece’s debt.
The I.M.F. made its position known on Tuesday by releasing a report that it had submitted to eurozone officials last weekend, in which it stated that Greece’s debt load was unsustainable and it proposed possible measures, including giving Athens a 30-year grace period before having to make any payments. Later Tuesday, a senior I.M.F. official told reporters that the fund could not put its support or money behind any bailout agreement that did not ensure that Greece would be able to repay its loans. German officials did not appear surprised by the I.M.F.’s position on Wednesday. They have maintained that the easing of Greece’s debt repayments could be addressed only through further negotiations that would follow Greek parliamentary approval of the creditors’ current demands.
The I.M.F. made its views known on Tuesday by releasing a report that it had submitted to eurozone officials last weekend, in which it stated that Greece’s debt load was unsustainable. The fund proposed other measures, including giving Athens a 30-year grace period before having to make any payments. Later Tuesday, a senior I.M.F. official told reporters that the fund could not put its support or money behind any bailout agreement that did not ensure that Greece would be able to repay its loans.
“I don’t think it will kill the Monday deal,” a person with direct knowledge of the debt discussions said on Wednesday, referring to the I.M.F.’s latest moves.“I don’t think it will kill the Monday deal,” a person with direct knowledge of the debt discussions said on Wednesday, referring to the I.M.F.’s latest moves.
The “I.M.F. was still involved during the weekend and the deal was based on I.M.F. figures,” said the person, who spoke on condition of anonymity because of the delicate nature of the Greece negotiations. The “I.M.F. was still involved during the weekend and the deal was based on I.M.F. figures,” said the person, who spoke on the condition of anonymity because of the delicate nature of the Greece negotiations.
A political analyst took a similar view. With $23.6 billion owing at the end of June, Greece is the I.M.F.’s largest debtor. Including money the fund also lent to Portugal and Ireland, nearly two-thirds of the fund’s outstanding credit is now in the eurozone — a reversal of the organization’s traditional focus on poorer, developing countries.
“The I.M.F. is controlled by member countries,,” said Mujtaba Rahman of the Eurasia Group, a political risk consultancy, “and in this context, Europe is dominant, so it certainly will not be able to kill the deal.” The I.M.F.’s prominence in the eurozone debt crisis has given its managing director, Christine Lagarde, the status of a head of state. She attended the summit meeting of eurozone leaders in Brussels last weekend that led to a tentative deal to keep Greece in the eurozone.
He added, “But it is raising the temperature on Berlin in a very significant way.” But Greece has proved to be a quagmire that has sullied the fund’s image. After five years of I.M.F. involvement in Greece, the country is effectively back where it started — overly in debt and with its membership in the eurozone in doubt.
Even if the I.M.F. fails to persuade eurozone creditors like Germany to offer Greece a debt reduction, the fund is still likely to participate in a third bailout for the country — although it could choose to be more cautious in the amount of money it loans, Mr. Rahman said. Guntram B. Wolff, the director of Bruegel, a research organization in Brussels, wrote in a blog post on Tuesday that the fund had taken too long to push for more debt relief for Greece and did not do enough to force Greece to modernize its economy.
“The outcome will, as always, be a fudge,” Mr. Rahman said. “The fact that Greece’s debt was from the outset unsustainable should have been recognized,” Mr. Wolff wrote.
“The I.M.F. will participate both financially and technically, despite the fact no principal haircuts will be forthcoming,” he added, referring to a debt write-down. Greece, which is already €2 billion in arrears to the I.M.F. because of two loan payments it recently missed, faces a crucial deadline on Monday, when it must make a payment of €4.25 billion on bonds held by the European Central Bank.
The document issued on Monday by eurozone leaders specifically stated that no write-downs of Greek debt would be considered. The Greek government will probably be unable to make the payment unless it can secure some sort of temporary financing from the eurozone creditors. Failure to repay the money might force the central bank to withdraw the emergency support that has been propping up Greece’s banks. If the banks fail, it would only intensify the downward spiral of the Greek economy.
The European Central Bank’s Governing Council will hold a regularly scheduled meeting on Thursday, when Greece is certain to be a central topic. If the Greek Parliament endorses conditions demanded by the creditors, the central bank could increase financial support to Greek banks, perhaps allowing them to reopen for the first time since June 29.
But the central bank might also decide to hold off on further aid to Greece until it has received the money that the Athens government owes.