Bloomberg: EU elections trigger questions over IMF’s involvement in Greece

Doubts are growing over whether the International Monetary Fund will sign up to the latest bailout of Greece before a series of elections in Europe makes any commitment to debt relief too politically sensitive.

The IMF’s involvement in the continuing rescue of the Greek economy is seen as key in reassuring markets. But elections in some of Europe’s most powerful countries in the coming months — starting with the Netherlands in March before France and Germany later in the year — may influence the timing of decisions on issues such as the
Greek bailout and Brexit. Bailouts are a losing proposition to many voters tired of paying for Europe’s most debt-addled nation.

The tension between European officials and the fund was on display at the IMF meetings this week. The European contingent will have a chance to do something about that when they convene in Luxembourg on Monday.

“We consider the IMF a necessary partner and we need the IMF on board,” European Economic Commissioner Pierre Moscovici said in an interview in Washington. For debt-relief discussions, “there is a window of opportunity now and after that we clearly enter into pre-electoral times and it will become a lot more difficult; the better window of opportunity is this year.”

Three separate officials with knowledge of the Greek bailout talks signaled skepticism that euro-area finance ministers would agree to medium-term debt relief either soon enough or in a way to satisfy the IMF. Any agreement must wait until completion of the next review of Greece’s implementation of bailout conditions. With Greece already dragging its feet on requirements for its latest payout, the window on reaching a deal is narrowing.

Politically Tricky

An accord must be struck no later than end of the year, officials say, before the political pressures start making it impossible. While Europe’s northern nations want the IMF’s involvement to add credibility to the latest phase of Greece’s six-year bailout saga, these are the same countries that are balking at the cost of it all.

The IMF insists that European creditors need to provide more debt relief than is being considered. The fund says the euro area’s fiscal targets for Greece are unrealistic, including a goal for 3.5 percent primary surpluses for many decades. The IMF has based its projections on a primary surplus of 1.5 percent.

“We do think that Greece has a problem with debt sustainability, we do think there is a need for debt relief and we need to discuss with our European partners what that relief will entail,” Poul Thomsen, director of the IMF’s European department, told reporters in Washington on Friday.

He said the IMF has “significant concerns” about uncompleted reforms, including to pensions and the welfare state. The debt relief measures currently under discussion between Greece and its creditors don’t include any nominal haircut, just financial engineering to ease the repayment schedule. While the IMF is participating in monitoring the current 86 billion euro bailout ($96 billion), it has not yet agreed to any financial contribution.
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