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Debt relief woes threaten Greece’s bailout exit

Debt relief woes threaten Greece’s bailout exit

The tug of war between the International Monetary Fund and Berlin over the Greek debt issue is threatening Greece’s successful bailout program exit in August.

Germany insists on granting Greece gradual debt relief under the condition that it will be approved every year by the Bundestag.

For its part, the IMF disagrees with Berlin’s insistence on reviewing the measures every year and is threatening to leave the Greek program.

If the IMF were to leave the program because it thinks that debt relief measures are inadequate to secure the sustainability of Greece’s debt, the country’s access to international market funding will be cast in doubt. This means that, inevitably, the government will have to resort to precautionary credit to shield itself from complications.

The chasm between Berlin and the IMF was clear during Monday’s session of the so-called Washington Group – representatives of Greece’s creditors as well as the governments of Germany, France, Spain and Italy, the biggest eurozone economies.

Poul Thomsen, the head of the IMF’s European Department, who attended Monday’s meeting, countered that Berlin’s conditions were not acceptable.

Thomsen said Tuesday that the Fund wants to activate the program for Greece but warned that time is running out and asked for final decisions on the matter by the next Eurogroup on May 24.

“Time is running out but if there is agreement at the Eurogroup meeting in May then there will be enough time for us to active the program and for it to coincide with the remainder of the [European Stability Mechanism] program which will expire in August,” he said.

Thomsen said that although there were “some different assessments of growth,” differences have “narrowed.”

However, the government’s knee-jerk reaction to the confusion could create yet more difficulties, analysts say.

A case in point was the remark by a Greek Finance Ministry official who reportedly hinted that planned pension cuts in 2019 – a highly unpopular bailout commitment – may be brought into question if debt relief is not secured and the IMF leaves the program. This would, most likely, make Greece’s return to international markers all the more difficult.

For his part, European Commission Vice President Valdis Dombrovskis said that the decisions with regard to the debt will be taken in May or June and called for a coordinated approach on the matter by the institutions.