Greece on track to reach a deal with creditors within 3 weeks: IMF official
The biggest guarantee that Greece and its creditors will finally reach an agreement on its debt burden is the upcoming payment deadlines that will force through a deal, an International Monetary Fund (IMF) official has told CNBC.
European creditors and technical teams from the IMF have been unable to agree on certain economic forecasts – key to determine how to make the Greek public debt more sustainable.
Sensitive political issues, including the upcoming election in Germany, have also delayed the process. But, according to the IMF official, who has knowledge of the talks but didn’t want to be named due to the sensitivity of the issue, the upcoming July repayments that Greece owes to creditors will ensure an agreement will be reached in about three weeks’ time.
“Somebody needs to give something away. There’s confidence there will be a deal in three weeks’ time because of the time pressure,” the official told CNBC on Wednesday.
An EU official, who has also knowledge of the talks, told CNBC on Friday morning: “It is our goal to reach an agreement on June 15.”
Greece has to pay about 8 billion euros ($8.96 billion) to its creditors in July and the current impasse over its debt is also delaying further disbursements from its current bailout program. Without fresh money, Athens will struggle to repay its creditors. Failing to make a payment to creditors would make the situation for the Greek economy even worse, with an immediate effect on markets and investor sentiment.
Euro zone finance ministers and the IMF are scheduled to meet on June 15. Eurogroup President Jeroen Dijsselbloem, who chairs such meetings, said last Monday that all sides were working “to try to come to a conclusion at the next Eurogroup.” His remarks followed an eight-hour meeting in which the ministers had a “first in-depth discussion on the topic of debt sustainability.”
Another bailout for Greece?
Though the IMF official is confident of an agreement on debt, they doubt that Greece will stop being an economic headache for the euro zone.
“Let’s be honest, it will take 20 years to fix Greece,” they said.
Several economists agree that Greece will need further financial assistance in the future, despite being on its third bailout since 2010. They have cited rigidness in the labor market and demographics as two critical issues that haven’t been fixed.
“As an economist I would agree, but as an IMF official I can’t, we can’t go to our board and say we are working on a program, yet there will be another one in the future,” the official said.
“The board would say take all the necessary measures now so we don’t have another program in the future,” the source added.
In a blog post on February 7, the International Monetary Fund said: “In particular, fiscal policies are still not conducive to growth. Half of wage earners are exempt from personal income tax, while the deficit of the pension system remains at a record high (10.5 percent of gross domestic product, almost four-times as high as the euro-area average).
“For Greece to return to sustainable growth and exit successfully from official financing, it needs to deepen and accelerate reforms,” the blog post stated.
According to calculations from the European Commission, Greece is set to reach a figure of around 175 percent debt-to-GDP in 2018 with an unemployment rate of 21 percent. This is the year when the current bailout is set to finish.
Greek Macron?
The International Monetary Fund has been part of the third Greek bailout, but informally. The Fund needs the guarantee that there will be debt restructuring and critical reforms applied that will ensure the country will be able to return to economic growth.
“If we had a Greek Macron, we would jump right now,” the IMF official said, in reference to the new French president’s focus on vastly reforming the French economy.
Expectations are that the IMF will indeed be officially part of the bailout – given that it’s key for countries such as Germany, which has told its people the IMF will be part of the rescue and is facing federal ballots in September. But it’s uncertain how the participation will play out.
“We will get some IMF participation, but no significant number,” Johannes Mayr, head of economic research at Bayern LB, told CNBC via email earlier this month.
Source: CNBC
