IMF and eurozone states fail to bridge divide over Greek debt relief raising prospect of a summer crisis for the single currency if Athens misses repayment
Eurozone finance ministers have failed to agree a debt relief plan for Greece, raising the prospect of a summer crisis for the single currency bloc if Athens misses a loan repayment.
A meeting of the eurozone’s 19 finance ministers broke up late on Monday night, amid a row with the International Monetary Fund about Greece’s debt burden.
The standoff came just hours after France and Germany pledged to deepen co-operation in the single currency and seize Brexit opportunities for their banking industries.
After more than eight hours of talks in Brussels, Greece’s creditors – the eurozone members states and the IMF – were unable to bridge their differences on Greece’s ability to repay its debts in the long run.
“We were very close and we were just unable to manage it tonight,” said Jeroen Dijsselbloem, the Dutch finance minister, who chaired the meeting. He said he hoped for a deal at the next eurozone meeting on 15 June.
The eurozone-IMF standoff is the final obstacle to Greece unlocking a tranche of bailout funds that will let it repay €7.3bn (£6.3bn) of loans due to be paid in July.
The EU agreed an €86bn rescue package for Greece in July 2015, an unprecedented third bailout that stopped the country from crashing out of the eurozone.
Although the headline figure has been approved, Greece needs to carry out scores of detailed reforms before receiving the cash, which is paid in instalments. It secured €10.3bn last May, but the latest payment has been held up for months.
It appeared the way was clear earlier in May when the Greek government agreed to extra pension cuts and tax increases demanded by creditors. However, a dispute between creditors has become a major stumbling block.
Northern European countries do not want to sign off cheques for Greece unless the IMF agrees to be part of the third bailout. Countries such as Germany and the Netherlands think the IMF will add rigour to the programme and fear the EU institutions will be too soft on Athens.
But the IMF has so far refused to get involved in Greece’s third bailout because officials think the country’s debts cannot be managed in the long-run. The Washington-based fund has repeatedly said it is looking for “a credible strategy to restore debt sustainability”.
At the heart of the dispute is a demand that Greece run a budget surplus equivalent to 3.5% of GDP. The European side thinks Greece can hit this target, but the IMF has long argued that any country with high unemployment, (currently 23% in Greece) would struggle to meet such demanding fiscal targets over decades.
In a sign of a possible concession, Dijsselbloem said there had been “full agreement that the 3.5% primary surplus should remain for five years” and eventually fall, although he did not specify a figure.
The IMF continues to insist anything higher than a 1.5% surplus is not credible: its officials are urging the eurozone to be realistic about Greece’s ability to keep a tight cap on public spending over decades.
Speaking about Greece’s debt sustainability, Dijsselbloem said there was a gap in expectations between the eurozone and the IMF. He said: “We need to close that [gap] by looking at additional options or adjusting our expectations. Both are possible and both should be done.”
Poul Thomsen, the head of the IMF’s European department, said Greece had adopted “a much more growth friendly-programme”, but made clear the other creditors would have to give way on debt relief before the fund got on board.
“I am happy to say that we think we have a staff level-agreement on policy,” he told journalists on Tuesday. “This needs to be supplemented with a credible package on debt relief. Here we are making progress, there is no doubt about that, but we are not quite there yet.”
He wants to see “more realism” in the EU’s growth forecasts for Greece and “a bit more specificity” on how the eurozone will ease the country’s debt burden in the long-run.
The IMF does not want to write off Greece’s debts, but is arguing for longer grace and repayment periods so they do not weigh so heavily on its economy.
Earlier on Monday the French finance minister and his German counterpart pledged to work towards deeper integration of the single currency union. Bruno Le Maire and Wolfgang Schäuble flew to Brussels in the same plane, after a press conference in Berlin where they announced a working group on eurozone reform.
Le Maire, appointed by Emmanuel Macron after the French president’s election victory, said failure to deliver results on reforming the eurozone would bring political extremists of the left and right to power.
Referring to Britain’s looming exit from the EU, Le Maire stressed France and Germany intended to seize any opportunities for their financial industries. “We see in Brexit the possibility for our financial sectors to be more attractive than they were in the past. This means jobs, work, and wealth for our countries.”
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