By JAMES KANTERMAY 17, 2016
The New York Times
BRUSSELS — The International Monetary Fund is increasing demands for Greek debt relief, setting up another potential standoff with creditors over the country’s bailout, and threatening to create more political and economic uncertainty at an already tumultuous time for Europe.
This I.M.F.’s position opens the next act in the long-running Greek debt crisis, casting the fund against Germany and many of the other eurozone creditors.
The fund is playing the role of the financial police, adamant that Greece will never return to growth if its debt burden is not sustainable. And Germany is the political pragmatist, leaning on Greece to stick with its austerity commitments lest it set a bad precedent for future bailouts and provoke unrest at home.
The tenor of the debate, while echoing the recent rhetoric, has changed in this latest run. The I.M.F. is now taking a firmer stand ahead of a meeting of eurozone finance ministers next week, by outlining specific demands on the cost and the timing of the debt payments, according to three people who spoke on condition of anonymity.
Whether they represent the fund’s absolute position or a starting point for negotiations, the demands leave Germany in a difficult spot.
If Germany gives too much, Chancellor Angela Merkel’s government will face pressure from the political far right for forcing taxpayers to bear an even bigger burden of Greece’s past profligacy. If it gives too little, the government might not receive the support of the I.M.F. for the bailout, which many German lawmakers have made a condition of further support for Greece. Those lawmakers see the I.M.F. as a guarantor of fiscal rigor.
Unless the two sides find common ground — or agree to further delay the I.M.F.’s participation in the latest bailout — the situation could soon come to a head. Greece needs the next disbursement of bailout money to make billions of dollars of debt payments through July. And the stakes are even higher now, as the region grapples with a renewed wave of terrorism, a migrant crisis and the uncertainty created by a vote in Britain over whether to leave the European Union.
The I.M.F. publicly sounded the alarms on Greece’s debt load last summer, as creditors developed a plan for the bailout of 86 billion euros ($97 billion), the country’s third lifeline since the crisis began seven years ago. Without debt relief, the fund said, it would not participate in the latest rescue. To the fund, Greece’s debt, about 300 billion euros ($340 billion), is simply unsustainable.
As the economic and political challenges intensify, the I.M.F. is staking out more specific turf.
In a presentation last week, the I.M.F. recommended that Greece’s interest payments to eurozone creditors would be fixed for up to 40 years at the current rate of 1.5 percent, according to the three people. The payments would also be deferred for even longer, the people said. The Wall Street Journal reported the contours of the plan.
The restructuring plan will be a tough sell. There is a sense among the eurozone creditors that the I.M.F. is being overly pessimistic about Greece’s outlook, to help drum up support for debt relief. While European officials have been playing up signs that Greece is bottoming out, the I.M.F. has been more skeptical about the country’s potential to raise revenue, shore up its budget and overhaul its economy.
There is a wide gap on the economic picture. Europeans estimate that Greece will hit a primary surplus — a budget in the black, before debt repayments — of 3.5 percent by 2018. The fund figures it would be closer to 1.5 percent at that point.
“There is a very strong belief in Europe that the I.M.F. is essentially cooking the numbers by being overly pessimistic about political and economic developments in Greece in order to strong-arm Northern Europe into providing more generous debt relief,” said Mujtaba Rahman, the Europe director for the Eurasia Group.
Germany, and the rest of Europe, cannot afford to let Greece’s economic crisis implode right now. As one of the main entry points for asylum seekers, Greece is an important piece of Europe’s efforts to manage the influx of migrants, so the country’s stability is especially crucial.
Tens of thousands of migrants have become stranded in Greece, their plans to travel farther north blocked by border shutdowns throughout the Balkans. That already has forced Athens to ask for emergency financing and supplies, including tents, blankets, sleeping bags and ambulances. Prime Minister Alexis Tsipras has frequently asserted that Greece is struggling with the burden of the migration crisis at the same time that it is putting austerity measures in place.
Publicly, Germany has stayed away from linking the bailout to the migrant crisis even as Ms. Merkel’s leadership has come under threat from a surge in popularity for the Alternative for Germany, a right-wing populist party that has opposed her open-door refugee policies.
Wolfgang Schäuble, Germany’s finance minister, has said he sees “no argument” for acceding to the I.M.F.’s demands.
But privately, Germany and the European creditors appear to be open to negotiation, given the current environment. When eurozone finance ministers discussed the bailout terms last week, they formally debated, for the first time, ways to ease Greece’s giant debt burden.
While they have ruled out cutting the value of Greece’s debt, more palatable measures like lower interest rates and longer repayment periods are on the table. In that way, they don’t look that far apart from the I.M.F., even if they don’t agree on the specifics and differ sharply on Greece’s outlook.
Eurozone officials are also trying to provide confidence to the I.M.F. that Greece won’t go fiscally off course. Last week, the finance ministers agreed to a mechanism that is supposed to kick into effect with additional austerity measures if Greece doesn’t meet its fiscal targets from now until 2018.
Greek lawmakers are expected to vote on Sunday on that mechanism, along with another set of austerity measures. They are widely expected to pass.
But, as ever in the seemingly unending crisis in Greece, much is likely to be left unresolved.
“What we’re seeing is another muddling through by the creditors, and that means the I.M.F.’s future role in the program and the related question of debt relief aren’t going to be settled any time soon — and certainly not by next week,” said Carsten Nickel, the deputy director of research at Teneo Intelligence, a political risk consulting firm.
Correction: May 19, 2016
Because of an editing error, an article on Wednesday about the International Monetary Fund’s push for debt relief for Greece misstated the dollar equivalent of 300 billion euros, the nation’s current debt. It is $340 billion, not $340 million.
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