IMF insists on need for debt to be sustainable

The head of the International Monetary Fund’s mission in Greece, Delia Velculescu, dampened expectations yesterday that the end of the Greek saga is in sight, saying, “We’re not there yet.”

Speaking at a conference organized by the Economist in Athens yesterday, the Romanian economist insisted Greece cannot be expected to achieve the primary budgetary surplus goals set by its creditors.

She said the IMF continues to believe that it will not be able to achieve surpluses of over 1.5 percent in the long run, nor to attain growth figures of more than 1 percent. She said it was simply unrealistic to believe that Greece can achieve a budget surplus, after debt and interest payments, of 3.5 percent of annual GDP.

Moreover, reflecting the chasm between the IMF and European lenders, Velculescu said they should focus instead on making Greece’s debt more sustainable – a condition set by the IMF for it to join the Greek program.

However, European lenders insisted that Greece will be on course to regain access to international markets next year and to solidify its public finances but that it must proceed in earnest to implement reforms it has agreed with its international creditors. “Greece is entering the final year of the program with a real opportunity to regain market access and actually end the program on schedule in August next year,” said the European Commission’s head of mission for Greece, Declan Costello.

On a more cautious note, the European Stability Mechanism’s mission chief for Greece, Nicola Giammarioli, said Athens must implement the reforms and that legislating change is not enough.

“We are half way,” he said. The cautious optimism of European creditors – stems from the June 15 Eurogroup deal stipulating the implementation of further austerity by Greece in exchange for fresh loans to meet its debt payments this year.

Moreover, falling bond yields since the agreement suggest that investors would consider lending to Greece again, prompting European creditors to predict that it could tap bond markets by the end of the year.

For his part, Greece’s Alternate Finance Minister Giorgos Houliarakis said it was essential for the country to take ownership of the program it agreed to at the Eurogroup.