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July 2, 2015 5:04 pm
Greece needs €60bn in new aid, says IMF
Greece needs more than €60bn in new financial help over the next three years and faces decades under a daunting mountain of debt that will make it vulnerable to future crises, the International Monetary Fund has warned.
In a new analysis that lays out Greece’s economic dilemma in stark terms, the IMF on Thursday called for Europe to grant the country “comprehensive” debt relief, arguing for the doubling of the maturities on its debts from 20 to 40 years.
The fund’s assessment is likely to provide succour to the Syriza-led government which is campaigning for a No vote in a referendum on Sunday. But the IMF also blamed it for the country’s deteriorating situation.
Before Syriza took power in January, the Greek economy had returned to growth and Athens had begun to put its debts back on a sustainable path, the IMF said. But the anti-austerity government’s decision to halt reform and privatisations and renegotiate the terms of its European-led bailout had led to a significant deterioration. The calling of a referendum followed by the shutting of banks and introduction of capital controls had only made the situation worse, it added.
The IMF released its analysis two days after Greece became the first advanced economy ever to default on the fund when it missed a €1.5bn repayment.
Yanis Varoufakis, Greek finance minister, insisted bailout negotiations would resume immediately after the referendum even if a No vote wins. But Jeroen Dijsselbloem, chairman of the eurogroup of finance ministers, warned Greeks their future in the euro was at stake.
“One illusion must be swept from the table: that if the outcome is negative then everything can be renegotiated and you will end up with an easier and more attractive package,” he said.
The eurozone’s top central bankers are set to reconvene on Monday and will almost certainly toughen the terms of emergency loans to Greece’s largest lenders if Greeks vote no in Sunday’s referendum, officials said. That could push one or more of the country’s biggest lenders over the edge and hasten Greece’s exit from the currency union.
The European Central Bank did not impose tougher discounts on the collateral Greek banks used to access loans on Wednesday to avoid claims that it was interfering in Greece’s referendum.
A senior IMF official also denied the fund was trying to influence the outcome of the vote by publishing its debt sustainability analysis.
The review — dated June 26, the same day Prime Minister Alexis Tsipras called for a referendum — said that even before this week’s events Greece needed €29.3bn in new financing for the 12 months beginning in October.
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Over three years from October, Greece’s total financing needs amounted to €51.9bn, of which €36bn would have to come from its European creditors.
With the expiry of the eurozone’s bailout, Greece would need a further €10bn for the next four months, a senior IMF official said on Thursday. Moreover, there was a very real possibility that they would rise further as a result of the deteriorating economic situation.
“Clearly this is subject to very significant downside risks now,” a senior IMF official said. “It is urgent that we get out of this current situation.”
The IMF analysis put the onus on Greece’s eurozone creditors to grant it significant debt relief. Even with a new bailout Greece’s “debt would remain very high for decades and highly vulnerable to shocks”, the IMF said.
Among the potential concessions proposed by the IMF was a doubling of the maturities on Greece’s existing debts to 40 years and the inclusion of a 20-year grace period on repayments.
“We are saying that the key issue here is that Greece has a very high debt. It needs time to bring it down,” said a senior IMF official.
Chart: Greek government debt projections
“A significant haircut could possibly do it. But so could a significant extension of maturities that would mean that Greece would not have to go back to the markets for a very, very long time,” the official said.
Germany and other European creditors have opposed granting Greece any further debt relief until Athens has committed to and started to deliver economic and fiscal reforms.
Most creditors are strongly resistant to any “haircut” or write-off of Greece’s debt which would, in many cases, require the approval of national parliaments.
But a senior IMF official insisted that its recommendation for an extension of the maturities on Greece’s debts held by European creditors was not intended as a politically palatable compromise.
“This is a dramatic move. This is not . . . something that is easy that is being done to circumvent political constraints, whatever they may be,” the official said. “We are asking the Greeks to do very, very difficult things. We are asking the Europeans to do things that are very, very difficult for them also. Let’s be very clear about that.”
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