Greece: the reasons behind the IMF ultimatum on debt – The World

Le Monde | 07/15/2015 at 8:38 • Updated 15/07/2015 at 10:17 | By Cécile Ducourtieux (Brussels, European office)

The International Monetary Fund (IMF) raised, Tuesday, July 14, a kind of “ultimatum” to the Europeans before the start of negotiations on the future plan of aid to Greece : it should be accompanied by a reduction of the government debt to help the country out of crisis. The IMF makes it a condition of its participation.

In a report released Tuesday but the European authorities were informed on July 11, before the agreement that determines a new aid plan in Athens is signed, the IMF estimated that Greek debt may not be viable that “with relief measures.”

• Why IMF has he said that?

The fact that the IMF advocates such redevelopment is not new. For months the institution of Washington holds this speech. It is also one of the few points of agreement between it and the Greek government.

But if the Fund réinsiste today is that it is tipped to participate the new aid plan for Greece amounting to a minimum of around EUR 80 billion (this will be the third plan since 2010, having already seen Athens lend 240 billion euros).

The Fund could bring 16 billion euros to pay its remaining within the framework of its own aid program for Greece (which ends in March 2016), plus a few billion (up 10 billion according to Brussels sources).

In order for such amounts are paid by the IMF in Athens, a number of conditions to fulfill.

First, the IMF can not not lend money to a country that owes him. However, the Greek Government has failed to repay 1.6 billion euros on June 30, and 456 million on 13 July. So we have that Greece pay its arrears.

In addition, the organization can lend to countries in financial trouble if the debt of the latter is sustainable and whether it is able, relatively short-term (ten years), to repay.

In the document released Tuesday, July 14, the Fund ensures that Greek debt is “totally unsustainable” and anticipates that it will approach 200% of GDP in “the next two years” , against about 175% now

Read also.: Why Greece’s debt is unsustainable

• IMF may refuse to participate in a new aid plan?

“In Washington, Greece is debatable: many in the IMF, would love to end, no longer participate in next plan. They feel they have too lent to a country so small, they have other priorities, “ said a European source. Adding that the subject is delicate: “The IMF can not refuse to help as a European country, mainly for political reasons. “

In this case, if the IMF did not participate in the new rescue plan, it would pose a big problem in a number of European creditors. Starting with the Germans, who say unambiguously for months. It does not matter for them to lend money again to the Greeks if the IMF is not a party

In Berlin, the Fund’s presence in the “club” of lenders is seen as a pledge that Athens will be truly monitored, Germany not trusting the European Commission to fulfill this role as an intermediary between Greece and its creditors .

• Will it towards new endless discussions on debt between creditors?

No doubt … For now, Germany, but also Spain, Portugal, Finland, Austria, Slovakia, Slovenia, the Baltic countries do not want to hear about a Greek debt restructuring. France, through the voice of its Minister of Finance Michel Sapin, reiterated that it was on the same line as the IMF.

“It [the IMF] said the same thing this we say. He said: “We need to help Greece, it is necessary solidarity, but we can not help Greece if we keep the Greek economy on the same weight of debt repayment.” “

In the Monday, July 13 agreement, it is specified that the “we can not operate in nominal discount of the debt” . However, this press release also states that “serious doubts hanging over the sustainability of the Greek debt” and “this is due to the relaxation of policies over the last 12 months which led to the recent deterioration in the macroeconomic and financial environment of the country. “

This suggests that a discussion on the increase maturities and lowering interest rates could take place in the coming weeks.

The discussions promise to be even more intense than some among the creditors of Greece feel that the conditions made in Athens on its debt are already very generous. Greek debt appears eg “maturity” average of 16 years (against 7 years for French debt) and the states of the euro area and the European Financial Stability Facility (EFSF) agreed that, by 2023, Athens pays no interest and no refund of the money borrowed.