I.M.F. Recalls Negotiators as Deadline Looms for Greek Deal

By LIZ ALDERMAN and LANDON THOMAS Jr.JUNE 11, 2015

The New York Times

PARIS — The plotline is familiar by now in Greece’s long-running debt crisis, as bailout talks once again hit a major snag. But at this stage just weeks before the bailout expires, the latest twist could have more serious repercussions.

On Thursday, the International Monetary Fund sent its negotiators on the Greek rescue program back to Washington, in the starkest sign yet that Athens may be forced to default on its debts at the end of the month.

The move underscores just how difficult the discussions between Greece and its creditors have become in recent weeks as both sides, under intense pressure from their various constituencies, seem to be hardening their positions.

The increasing acrimony between Greece and its creditors casts doubt over whether the two sides can work out their differences to unlock fresh funds for Athens. Any impasse on this front will only make it more difficult for Greece if it tries to extend its bailout or decides to seek a new one, which the country needs to meet debt payments in the coming year.

Its current bailout of 240 billion euros ends on June 30, and the country owes large sums to its creditors, the I.M.F., the European Central Bank and other eurozone countries. Greece will be hard-pressed to repay on its own now that the economy has slumped back into a recession.

To some degree, bankers and negotiators say the I.M.F. decision should not be seen as a total surprise, given the state of discussions over a deal to release €7.2 billion in aid to the country. Greece and the I.M.F. have been at loggerheads for months over thorny issues like pensions cuts and labor reforms.

The breaking point appears to have been a document that European Commission President Jean-Claude Juncker submitted to Greece in recent days. One top Greek official who spoke on the condition of anonymity said the document was chock-full of “maximalist I.M.F. proposals” that they could not agree to.

When it became clear to I.M.F. officials that this would be the Greek stance, they decided to head back to Washington, people involved in the talks said.

While the I.M.F. move certainly increases tensions on both sides, some veterans of such high stakes negotiations argue that is the point of the strategy. Peter Doyle, a former economist at the fund who specialized in Europe, said that there were many occasions when he was called home at a sensitive time in debt talks — only to resume discussions and even get a deal done.

Yes, they are hopping on planes, Mr. Doyle said, but their computers and cellphones will remain switched on.

“The I.M.F. never leaves the table,” the spokesman, Gerry Rice, said at a press briefing in Washington. “But the ball is very much in Greece’s court right now.”

The I.M.F. is not the only hard-liner.

Many believe a certain camp in the German finance ministry would just as soon see Greece default and leave the euro. On the other hand, Greek officials have bet from the beginning that Chancellor Angela Merkel of Germany, unwilling to have such a rupture in the eurozone on her watch, would swoop in and draft a compromise pact at the last minute.

For the moment, there is little sign that Ms. Merkel is ready to make such a move. And European officials fear that time is running short.

“There is no more space for gambling, there is no more time for gambling,” Donald Tusk, the European Council president, said on Thursday, in remarks aimed at Greece. “The day is coming I am afraid that someone says the game is over.”

While the I.M.F. has publicly blamed Greek intransigence for its decision to walk away, senior officials at the fund said that they were just as frustrated with Europe’s refusal to consider writing down its pile of Greek debt.

Europe has extended maturities and reduced interest payments on its loans. But the stock of debt, at 180 percent of the overall economy, remains at an unsustainable level, I.M.F. economists say. By statute, the fund cannot lend money when a debtor is deemed to have a level of debt that it cannot service in the future. The I.M.F. skirted this restriction in the case of Greece by arguing that a bailout was needed to prevent financial contagion.

I.M.F. executives are now privately saying that Greece’s problems cannot be solved with pension and labor reforms alone. Europe, too, must come through with significant debt relief, said one official involved in the negotiations who spoke on the condition of anonymity. Without it, there is little hope that the Greek economy will break out of its multiyear slump, the person said.

Relations have soured quickly in recent weeks.

Greece this month opted to bundle more than €1.5 billion in imminent loan repayments due to the I.M.F. by the end of June, optimistic that it would quickly seal a deal for financial aid. The extension was meant to buy Athens more time to renegotiate terms that Prime Minister Alexis Tsipras of Greece, facing pressure from his leftist Syriza party, said forced Greece to accept too much austerity.

Just last week, Mr. Tsipras and Mr. Juncker signaled that they were working out differences. But days after they met in Brussels, Mr. Tsipras made a strident speech in Athens front of a cheering Greek parliament in which he called the creditors’ plan “absurd.”

Those remarks reignited tensions with European policy makers, and Mr. Juncker accused Mr. Tsipras of failing to disclose important details of the proposal made by Greece’s creditors. Mr. Juncker said he wanted Greece to remain in the euro currency zone but could not “pull a rabbit out of the hat.”

Mr. Tsipras was playing to a home crowd to some extent. Far-left members of Syriza, which rode to electoral victory in January on pledges of repudiating the current bailout and its austerity terms, have been rebelling against Mr. Tsipras for making some concessions that appeared to go against the party line.

After the most recent meetings, all sides publicly sought to cast the situation in a positive light.

Mr. Tsipras met with Ms. Merkel and President François Hollande of France on Wednesday night in Brussels. The Greek prime minister and Mr. Juncker met on Thursday and went into closed-door discussions with broad smiles for the cameras that were widely cited in the Greek media as a sign that tensions had eased.

“We are cooperating to reach an agreement that will ensure Greece can recover with social cohesion and sustainable debt,” Mr. Tsipras said in a statement.

But beneath the surface, it was a different story.

The decision by Mr. Juncker to hold more direct negotiations with Mr. Tsipras showed the expert-level process involving I.M.F. officials was not functioning properly, one person with knowledge of the discussion who spoke on the condition of anonymity. Mr. Juncker’s involvement amounted to “a last attempt to make a deal possible,” the person said.

After recalling its team from Brussels, the I.M.F. said that “major differences remain” and that “no progress” had been made on narrowing them.

“We are well away from an agreement,” said Mr. Rice.

Liz Alderman contributed from Paris and Landon Thomas Jr. from New York. Niki Kitsantonis contributed reporting from Athens, James Kanter from Brussels, and Mikayla Bouchard from Washington.