Euro zone, IMF split over Greece re­form pro­gramme

The Pak Banker - - COMPANIES/BOSS -

Euro zone lenders and the In­ter­na­tional Mon­e­tary Fund dis­agree over how much more Greece needs to do to re­form its econ­omy, a dis­pute that may de­lay new pay­outs and the start of debt re­lief talks, of­fi­cials said. Greece has been kept afloat since 2010 by IMF and euro zone bailouts. The lenders have dis­agreed in the past, but they have man­aged to re­solve their is­sues be­fore they got much pub­lic­ity. But af­ter Athens had to ask for a third bailout last year, of­fi­cials said that some in the IMF wanted to stay out of yet an­other pro­gram un­less they were sure it would get Greece back on its feet.

"The main prob­lem now is dis­agree­ment be­tween the in­sti­tu­tions, be­cause that will harm the cred­i­bil­ity of any so­lu­tion," one se­nior of­fi­cial said. "They must get their act to­gether and agree on a sce­nario and on pol­icy mea­sures."

IMF and euro zone of­fi­cials hope to reach a com­pro­mise on Greece in talks this week, be­fore a meet­ing of euro zone fi­nance min­is­ters on Mon­day. Se­nior of­fi­cials from both sides are to meet for din­ner on Wed­nes­day in Brus­sels to dis­cuss the is­sue.

Un­til the euro zone and the IMF agree, they can­not de­cide if Greece has met the first re­quire­ments for the pay­out of new loans. Nor can the euro zone start dis­cus­sions with Athens on debt re­lief that would help make Greece's huge debt sus­tain­able. Greece has no ma­jor debt re­demp­tions due un­til July, giv­ing the lenders and Athens time to find a com­pro­mise. But the drawn- out talks un­der­mine in­vestor con­fi­dence.

"If we now en­ter a cy­cle of whether this re­view will be con­cluded or not, it will gen­er­ate the kind of in­se­cu­rity we more or less had last year ... with the loss of con­fi­dence and cap­i­tal flight," a third of­fi­cial close to the lenders said.

The dis­pute fo­cuses on what the coun­try needs to do to reach a 3.5 per­cent pri­mary sur­plus in 2018 and keep it there so that it no longer has to bor­row from other euro zone gov­ern- ments to re­main sol­vent.

Of­fi­cials said the IMF had a more cau­tious out­look than euro zone in­sti­tu­tions on Greek eco­nomic growth and fis­cal per­for­mance, as ex­pe­ri­ence showed Athens un­der­per­formed tar­gets. The IMF be­lieves Greece's pri­mary sur­plus in 2018 will be around 2 per­cent with the cur­rent re­forms. Growth will be about a per­cent­age point lower than fore­cast by the euro zone. Greece should there­fore be more am­bi­tious with re­forms, es­pe­cially with the most po­lit­i­cally dif­fi­cult, pen­sion re­form. Yet Greece's com­mit­ments are spelled out in a mem­o­ran­dum of un­der­stand­ing (MoU) it signed with the euro zone in Au­gust. It says the pen­sion re­form will de­liver sav­ings of 1 per­cent of gross do­mes­tic prod­uct in 2016. The draft re­form pre­pared by Athens does that.

The IMF was in­volved in talks on the mem­o­ran­dum, but did not sign off on it and is not for­mally part of the bailout. It says the num­bers don't add up. "To reach its am­bi­tious medi­umterm tar­get for the pri­mary sur­plus of 3.5 per­cent of GDP, Greece will need to take mea­sures in the or­der of some 4-5 per­cent of GDP," the IMF's head of the Euro­pean depart­ment, Poul Thom­sen, wrote on his blog on Feb 11. "We can­not see how Greece can do so with­out ma­jor sav­ings on pen­sions." The pen­sion re­form could be less am­bi­tious and the 2018 pri­mary sur­plus lower if the euro zone of­fered Greece greater debt re­lief, Thom­sen said.

That would irk some in the euro zone who have to main­tain sim­i­lar sur­pluses to keep debt sus­tain­able or who, like the Baltics or Slo­vakia, find it dif­fi­cult to jus­tify Greeks get­ting big­ger pen­sions than their own cit­i­zens. An­other snag is that the IMF wants debt re­lief to solve the is­sue once and for all. The euro zone wants a stag­gered scheme, linked to con­di­tions over time. While the IMF is not for­mally part of the third bailout, the euro zone would very much like it to be. But the Fund will not join un­less their views align.

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