IMF-EU compromise on Greek debt will be found in next three weeks, Brussels sources say

A compromise solution between the Europeans and the International Monetary Fund (IMF) that allows the next tranche of loans to be disbursed to Greece will almost certainly be found before the June 15 Eurogroup, well-informed Brussels sources said on Tuesday.

“There will not be any drama for Greece this summer. The installment will be disbursed on time,” the sources said.

At the same time, they noted that two things must happen in order for a compromise to be found: firstly, there has to be greater clarity regarding the debt relief measures to be adopted; and secondly, the forecasts for the Greek economy’s prospects must be based on assumptions that the IMF considers “realistic” and “reliable”.

During Monday’s Eurogroup, the Europeans and the IMF agreed that Greece must achieve a 3.5 pct of GDP primary surplus from 2018 until 2022. After 2022, however, the IMF believes that the primary surpluses must be reduced to at least 1.5 pct of GDP, whereas the Europeans want targets ranging from 2.0-2.5 pct of GDP.

According to reliable sources, the IMF considers that the European forecasts for Greek economic growth and the primary surpluses it can achieve are not at all realistic and this also affects decision on the debt. On the basis of its experience, the IMF considers that a country with Greece’s demographic composition, low productivity, high youth unemployment and weak administration is not in a position to sustain high rates of growth and primary surpluses for many years.

Regarding the debt relief measures that will be implemented after the end of the Greek programme in August 2018, the IMF wants these to be made specific now, on the basis of the decisions made in May 2016. Greater clarity for the IMF means a specific decision on how long the repayment period and maturity of Greek loans will be extended and a grace period for their repayment.

On this issue, there was progress during the discussion at the Eurogroup on Monday but due to the disagreements on the basic parameters for growth and primary surpluses, it was not possible to achieve a compromise, Brussels sources said. In spite of this, the various sides express certainty that a compromise will be reached within the next three weeks.