IMF and EU continue to disagree on the Greek debt

IMF and EU continue to disagree on the Greek debt

Athens, July 16, 2015/ Independent Balkan News Agency

By Spiros Sideris

The differences between the EU and the IMF remains, regarding the assessment of the Greek debt as a percentage of the GDP, as well as whether it is sustainable.

On Wednesday saw the light of day the analysis of the European Commission for the sustainability of Greek debt, which was held following the request by the Greek government on a new support program.

According to the report of the European Commission, the ratio of debt to GDP is expected to reach 165% in 2020 and 150% in 2022 if Greece takes adequate measures to reduce it, because otherwise it could reach 187% and 176%, respectively.

This analysis comes one day after the publication of the corresponding IMF report which states:

The debt will reach its peak near 200% of the GDP over the next two years and by 2022 it is predicted that it will be at 170%, a forecast that far exceeds the estimate for 142% of the GDP.

The dramatic deterioration in the debt sustainability suggests the need for debt relief on a scale that will need to exceed significantly the one that was considered so far – and what has been proposed by the ESM.

If Europe favors again to provide debt relief through the extension of maturation, there should be a very active extension with a grace periods, say 30 years, for the total sum of the debt, including the new aid.

Other options include specific annual transfers to the Greek budget or deep “haircuts” in advance but this, according to the IMF, is something to be decided by Greece and its European partners.

The report of the European Commission acknowledges that the Greek debt is unsustainable, noting that the situation has deteriorated severely in connection with the report in April 2014, and that a very significant reprofiling is required, however, it is made clear that for addressing the issue reforms must first be made.

The elongation of the Greek debt is an option as it does not significantly reduce its value, spokesman of the German Ministry of Finance Martin Geiger, adding that otherwise it would be tantamount to a haircut from the back door.

Regarding the proposal of the IMF, to lengthen the maturity of Greek debt to 30 years, he said that, technically, this possibility exists, but will not be a solution if it results in a significant reduction of its nominal value.

Geiger added that Germany takes under serious consideration the report of the IMF on the Greek debt, but Berlin continues to believe that sustainability can be achieved through fiscal and structural measures and growth in Greece.

His complete agreement with the IMF states the finance minister of France. Michel Sapen, indeed, pointed out that thanks to Alexis Tsipras, the reduction of Greek debt is back on the table.

Hesitant, however, appeared the vice of the European Commission, Valdis Dobrovskis, who noted that loans given to Greece will begin to be repaid from 2020.

Britain, despite being outside the euro zone, agrees with the IMF, with Prime Minister David Cameron stating that the request by Greece for debt consolidation is right.

The issue of Greek debt will be addressed in the contacts of the US Secretary of Treasury Jack Lew in Europe, who will meet with separately with Mario Draghi, Wolfgang Schaeuble and Michelle Sapen.