Greek debt needs to be restructured, not forgiven

BERLIN: Greece’s debt needs ‘significant’ restructuring, but debt forgiveness by the country’s creditors is not necessary, International Monetary Fund (IMF) chief Christine Lagarde said, appearing to soften the lender’s previous stance.

“Debt will have to be restructured appropriately,” the IMF’s managing director told German television channel ARD after meeting Chancellor Angela Merkel in Berlin.

“At the present time no haircut is needed,” she said, referring to a financial market term for debt write-offs by creditors.

But she also called for Greece to implement deep reforms.

“We had asked the authorities to consider two categories of reforms, pensions reforms, income tax reforms,” she said.

“Those are the two key areas but there are many others that need to be conducted in order to improve the economic situation of Greece.”

Lagarde said she was now “much more confident” on the outlook for resolving the Greek debt crisis “after the progress made by the Greek authorities to come in the direction of the institutions to satisfy the requirements that we have”.

By dropping any insistence on outright debt relief, Lagarde seemed to be departing from the IMF’s previous stance, taking a major step towards the position of Germany which has ruled out debt forgiveness.

Greece’s eurozone and IMF lenders have been locked for months in a standoff over debt relief and budget targets.

Instead, Lagarde said Greek interest payments should be lightened and the maturity of outstanding debt lengthened, meaning Athens will have more time to pay it off.

Such ‘ significant’ easing of the burden would, however, only come at the end of the current bailout programme once Greece had delivered on reforms.

“The more reforms, the more progress, the more improvement of the economic situation, the less there will have to be in terms of debt restructuring,” she said.

Greece on Monday agreed to discuss new bailout reforms in a bid to break the deadlock.

But the IMF, which has stayed out of Greece’s huge 86-billioneuro ( US$ 91 billion) bailout agreed in 2015 until it gets more guarantees, said more work was needed.

The Europeans have been at loggerheads with the IMF over the Washington-based lender’s demands for easier budget targets, and its concerns over the size of Athens’ mountain of debt which it said previously had to be cut.

“There has been a lot of austerity in this country, a significant reduction of the whole economy of Greece, so what we need now is discipline and structural reforms that will help the country going forward,” Lagarde said in Berlin.

Eurozone hardliners, led by Germany’s Finance Minister Wolfgang Schaeuble, have ruled out any debt relief, while insisting at the same time that the IMF stay on board with the bailout.

Athens needs the latest tranche of bailout cash to meet seven billion euros of new debt payments in July or risk defaulting on its loans. — AFP