Pace of reforms must be kept up
IMF urges Athens to stick to goals; size of additional Greek aid still being worked on, says Lagarde
Greece’s government must keep up the pace of change to prevent its program from faltering, an International Monetary Fund official said yesterday as European Union leaders continue to scratch their heads over how to tackle the Greek crisis.
“It is clear Greece is at a critical point,” Bob Traa, the head of the IMF mission in Greece, told a conference in Athens. “The choice is between bold reform or to allow the pace of reforms to slow. The headwinds are difficult for Greece right now.” Without deeper reductions, the country’s budget shortfall will remain stuck at between 9 percent and 10 percent of gross domestic product, Traa said. State asset sales will begin “without delay” and Greek banks need to bolster their capital buffers, he said.
“As long as doubts exist about the assets held by the banks, wholesale market access will likely remain impaired and, in this regard, larger capital cushions will help to reduce these doubts,” Traa said.
“Financial sector stability plays a crucial role in this recovery. They have to support financial stability and banks must do their part. In particular, banks should seek further capital and improve the market’s perception of their valuation.”
A year after the bailout that aimed to stop the spread of the debt crisis, Greece remains mired in a third year of recession, shut out of financial markets and saddled with the biggest debt load in the euro’s history. Greece now needs a second rescue package to avoid the euro area’s first sovereign default.
The Washington-based IMF provided 30 billion euros of Greece’s original loan bailout of 110 billion euros.
From New Delhi yesterday, French Finance Minister Christine Lagarde said that the size of the additional financial package for Greece had not yet been worked out and that the package will not include the restructuring of Greek debt.
“It is in process, there is no final number at this point in time,” she told reporters.
“No,” Lagarde responded to a question on whether she expects Greek debt to be restructured.
While the government struggles to prevent Greece from defaulting on its debt, the Socialist Cabinet has been debating a midterm economic plan which will impose 6.4 billion euros of extra savings in the rest of this year alone.
The Greek government expects Parliament to vote on its midterm austerity plan by the end of June.