German Chancellor Merkel to meet Lagarde as IMF’s Greece involvement comes to fore

German Chancellor Angela Merkel will meet the chiefs of two of the institutions auditing Greece’s bailout next week as questions over the International Monetary Fund’s involvement in aiding the cash-strapped country come to the fore.

Merkel will host IMF Managing Director Christine Lagarde and European Commission President Jean-Claude Juncker in separate meetings at the Chancellery on Wednesday, Ulrike Demmer, a government spokeswoman, told reporters in Berlin on Friday.

The government still insists on the IMF making a financial contribution to Greece’s bailout, Finance Ministry spokeswoman Friederike von Tiesenhausen said at the same press conference. The fund will contribute as much as 5 billion euros ($5.33 billion) to the country’s third rescue package, German magazine Der Spiegel reported Friday, without saying where it obtained the information.

“We have said over and over again that for us the IMF’s participation is indispensable and we are working on this path,” Tiesenhausen said. “We have already said this week — there are also comments from Brussels on this — that there is convergence between the institutions.”

Merkel, who faces a federal election on Sept. 24 and has fallen behind her Social Democrat challenger Martin Schulz in some opinion polls, needs the IMF on board to make good on a promise to her Christian Democrat-led caucus that the fund will play its role in overseeing Greek compliance with the conditions laid down in the program.

German Election

Anti-euro Alternative for Germany, a party which has also sapped support for Merkel, would likely seek to capitalize on any parting of the IMF, which has been presented by the government to Germans as a guardian of strict compliance with the program’s conditions.

Merkel’s meetings are scheduled to take place two days after euro area finance ministers gathering in Brussels will evaluate Greece’s progress in complying with the terms attached to the bailout, including an overhaul of labor market rules. The review is already one year behind schedule and no final decision on its conclusion will be taken at Monday’s meeting, Tiesenhausen said.

While the ministry hears of “good progress” in talks within the group of creditors as well as between them and Greece, it’s unclear when the institutions’ mission chiefs will return to Athens to build on progress that’s been made, Tiesenhausen said. A successful conclusion of the review would allow the IMF to rejoin the Greek program, an EU official told reporters in Brussels on Thursday.

Fiscal Targets

The Greek government blames the IMF for the delay, as the fund disputes the sustainability of the country’s finances and demands more pension cuts and a lower income tax-free threshold. The IMF has also been asking European creditors to further ease repayment terms on Greek bailout loans, thus allowing the country to adopt less ambitious fiscal targets for bringing its public debt back to a sustainable path.

Demmer declined to comment on a media report suggesting that the chancellor and Lagarde discussed Greece by phone several days ago. Lagarde told Merkel that the IMF would join the current program and push a discussion on debt relief for Greece to 2018, well after the German elections, Die Welt reported.

Source: Bloomberg