The IMF proposes to freeze the repayment of Greek debt by 2040 – The Tribune.fr

The dialogue is still possible between the Eurogroup and the IMF on Greek debt? According to the Wall Street Journal, the Washington-based institution has proposed a very distant Greek debt restructuring scheme of creditors’ claims. The IMF and propose a moratorium until 2040 for all refunds, interest and principal, then spreading until 2080 refunds, which would maintain net financing needs of Greece under the 15% of GDP . By 2040, Greece would be required to achieve a primary budget surplus (balance of revenues and expenditures) of 1.5% of GDP.

This proposal would certainly save the par value of the Greek debt owned by the creditors of the euro area, as these require, but it would take a strong devaluation of the real value “present” of this debt because repayment would be smoothed over 21 years longer than expected repayment plan today. The IMF refused, according to its statutes to integrate third Greek program if there is no restructuring extent of the Greek debt and the establishment of credible objectives. The Institution of Washington and believes that it is not possible to hold the primary surplus target of 3.5% of GDP from 2018 to now.

Europeans choke before the IMF proposal

the problem is that Europeans are not ready yet to accept the Greek debt restructuring of this magnitude. In its press release of 9 March, the Eurogroup had certainly discussed measures from 2018 and in case of “success” of the program, including lengthening of maturity and default, but according to the Wall Street Journal, the Europeans found very “hard” ( “hardcore”) this proposal the IMF. According to Die Welt , the Eurogroup had thus rejected on Monday a proposal by the European Stability Mechanism (ESM), which, while maintaining the primary surplus target of 3.5% of GDP for a long time, undertook to limit reimbursements to 2050 to 1% of GDP for capital and 2% for interest.

the German vision, shared by the vast majority of Eurogroup with the exception of France, is summarized by the Bundesbank President Jens Weidmann in an interview published on Monday: “ the most urgent problem of Greece is not the debt service, but the compliance with the program . ” This belief dominates the logic of the Eurogroup still think that by dint of the primary surplus, we could reach the debt of Greece. Therefore, the debt restructuring can not be for the finance ministers of the eurozone, that a political tool to deceive Alexis Tsipras, Greek Prime Minister or the IMF, but not an instrument of economic management and financial. We now understand that the IMF project is not acceptable.

The logic of the IMF project

But this project is still extremely hard from a Greek point of view because if the debt repayment is highly diluted, the requirement to maintain a primary surplus is very constraining for Greece and will have a negative impact on growth. While some countries such as Norway, Denmark, Finland and Belgium have been able to sustain high primary surpluses without recession in the years 1990-2000, their competitiveness was initially higher than Greece, their productive potential was stronger and some were able to adjust at the beginning of the phenomenon, their currency. However, in Italy, where the primary budget surplus was between 1992 and 2011, potential growth deteriorated sharply and the economy has stalled since the entry into the euro zone in 1999. There, the primary surpluses have failed to put the country immune to the recession, market attacks and the increase in public debt. Greece has lost 28% of GDP since 2009 and the country is rebuilt. Such as Italy, Greece is overindebted. To restore confidence, an ambitious plan for debt reduction is needed. It would in particular further reduce the necessary surpluses. A primary surplus without support activity is a risk. Still, the IMF has taken into account the refusal of the European creditors of any “ haircut “, ie a waiver of the nominal value of the debt.

The German dilemma

It is increasingly unlikely that an agreement on the debt be found before May 24, the date of the next meeting of the Eurogroup. Already, some suggest the possibility to dispense with the IMF. The MES project proposed acquisition of the Greek debt to the IMF by using the available capital of the ESM, load in Athens to repay the MES. However, this would include a loss on the payment of interest for Europeans. Above all, the German government is committed to the Bundestag to join the IMF in the program to “soften” the bill for the “German taxpayer” . Any failure of this view would be a real challenge for Angela Merkel who does not need while its alliance, the CDU / CSU is the lowest in the polls and the extreme right, AFD, the highest. .. the Germans face their own contradiction. convince the IMF to come to their conditions falls more than ever the challenge

the bet lost Alexis Tsipras

and the Greece? Alexis Tsipras has hardly any say in this discussion. It should, on Tuesday to submit a new law containing various measures demanded by creditors, including privatization. It should also establish an automatic mechanism for reducing spending to the 2018 primary surplus target of 3.5% of GDP. His repeated refusal to discuss with the IMF is room in the obligation to submit to the logic of the creditors of the Eurogroup. His bet was that the IMF put stiffer and harder goals and could more easily negotiate with the Europeans politically. But if, historically, this was just thinking, you had to take into account the need that the IMF was in the two previous programs, in the logic of sustainability of the Greek debt, forcing at high surpluses. The Washington institution today refused this logic. Certainly, as we have seen, the IMF requirements often untenable reforms. But the Eurogroup has just imposed a new memorandum and the dream of Alexis Tsipras to impose a political compromise seems unattainable. Merkel still refuses to place the issue of Greek finances politically. She lets him in care of the inflexible Wolfgang Schäuble.

The bet Alexis Tsipras is lost. It is difficult now demand respect the demands of the IMF after asking for months his exclusion from the program. He will have to accept the restructuring to be proposed to him, however modest it and submit to primary surplus targets submitted to it.