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I.M.F.’s Insistence on Greek Debt Relief Adds to Complexity of Talks Greece Nears Vote on New Bailout Package
(about 7 hours later)
BRUSSELS — The International Monetary Fund’s declaration that it would not back a new bailout for Greece unless the pact substantially reduced 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. ATHENS — Greece headed toward a critical vote Wednesday night on its bailout package as its creditors renewed a divisive debate over giving the country a break on its debt.
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. A day after the International Monetary Fund signaled that it might not back the new bailout unless the pact substantially reduced the debt burden on Athens, Greece remained committed to taking the first formal step required of it under the plan it negotiated over the weekend with its European creditors: giving parliamentary approval to a package of economic policy changes long opposed by the left-wing government of Prime Minister Alexis Tsipras.
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 I.M.F.’s stance aligned it with Mr. Tsipras on the question of debt reduction and provided him with new ammunition to argue that the bailout plan does not do enough to get the Greek economy back on its feet. But with Greece teetering on the edge of insolvency and its banks closed, Athens moved ahead with the planned vote, required to unlock the aid necessary to meet a debt payment on Monday, put its banks on sounder footing and negotiate a three-year package that would provide it with as much as 86 billion euros, or about $94 billion, in assistance.
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. Despite a revolt by some in his party, it seemed Mr. Tsipras would have the votes necessary to pass the measures in Parliament, even though he said in an interview on state radio on Tuesday that he considered the agreement flawed. He said the alternative — Greece’s being forced out of the eurozone — was the greater evil.
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.
“I take full responsibility for mistakes and for signing a document that I don’t believe in but must implement,” Mr. Tsipras said.“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 member of the European Parliament 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. Dimitrios Papadimoulis, a member of the European Parliament from Mr. Tsipras’s 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. The I.M.F. position would provide an “additional argument” for reducing his country’s debt payments, he said, but right now Greece needed to “stay alive” and approve the measures demanded by its European creditors.
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. Yet there were also indications that the I.M.F.’s stance might give new vigor to those opposed to the bailout terms and intensify the political challenge facing Mr. Tsipras in keeping Syriza united. On Wednesday night, the police fired tear gas into crowds of anti-austerity protesters outside the Parliament building.
“There are new facts that need to be taken into account,” Zoe Konstantopoulou, the speaker of Parliament, said. “There are new facts that need to be taken into account,” said Zoe Konstantopoulou, the speaker of Parliament, referring to the I.M.F. position.
“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. “It’s the duty of Parliament not to allow this blackmail against the government and Parliament to be completed,” she added, referring to the first set of austerity measures, including tax increases and pension cuts, which the creditors have insisted 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. The I.M.F.’s public signal on Tuesday that it supports steps like forgiving some of Greece’s debt or putting a three-decade moratorium on debt payments put it in conflict with the country’s European creditors. The deal announced Monday morning after a weekend of contentious negotiations 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 bailout would be the third for Greece in five years and would involve new loans from the other countries that use the euro, the European Central Bank and the I.M.F.
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 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 that they might not get all their money back. Greece and its creditors will begin negotiating the details of the bailout and any debt relief once Athens gives parliamentary approval to the required policy changes and other European nations ratify their involvement in new talks. French legislators gave their assent on Wednesday, and Germany could take up the issue as soon as Friday.
The French government, which has played a central role in efforts to keep Greece in the eurozone, welcomes the fund’s comments. In Athens, tensions flared at times as Parliament prepared to vote on the measures. When the controversial former finance minister, Yanis Varoufakis, took the floor to compare the deal reached over the weekend in Brussels to the Treaty of Versailles, one member of the center Right Democracy Party interrupted him to shout, “You ruined the country.” Mr. Varoufakis, who along with Mr. Tsipras had taken a confrontational stance with the creditors, has said he would not vote for the legislation.
During preliminary hearings, opposition party members took turns blaming Mr. Tsipras for the current state of affairs, but vowed to vote for the measures. Harry Theoharris, a member of the centrist To Potami party, said that 10 years from now students would be studying the events of today and “how we shot ourselves and then started whining for a disability benefit.”
If nothing else, Greeks took some solace from the idea that the I.M.F. statement would help them keep attention focused on the issue of the debt, which Greece has long maintained is so heavy a burden that it chokes off hope of any strong economic recovery and forces unjustifiably deep cuts in government spending.
“Certainly this issue is also going to be part of the discussions, negotiations when we’ll be discussing the memorandum of understanding, when we will be really preparing the third Greek program,” Valdis Dombrovskis, a vice president of the European Commission responsible for the euro, told the news media in Brussels.
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, or about $330 billion. Others, including France, have stressed the need to reduce Greece’s debt payments to a more realistic and sustainable level, if not by forgiving any of the debt then by extending the payment schedule or cutting interest rates.
The French government, which has played a central role in efforts to keep Greece in the eurozone, said it welcomed 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 derail an agreement, saying the bailout deal this week had opened the way to negotiating the details, “including a restructuring of the debt.” Wolfgang Schäuble, the German finance minister, has been one of the most hard-line opponents of debt relief for Greece.
“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.” He 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. Chancellor Angela Merkel of Germany has ruled out writing off any of Greece’s debt, but has left the door open to renegotiating the terms for paying it back, suggesting that there remained grounds for a compromise. German officials 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.
“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.
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.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.
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.
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.’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.
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.
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 fact that Greece’s debt was from the outset unsustainable should have been recognized,” Mr. Wolff wrote.
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.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 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 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 Greek 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.