Greece needs significant pension reforms to make the system sustainable but this must be accompanied by debt relief from its European partners, International Monetary Fund (IMF) Managing Director Christine Lagarde said on Thursday in a press conference.
“I have always said that the Greek program has to walk on two legs: one leg is the one of significant reforms and the other one is a debt relief. We persist on that view…if the pension reform cannot be as significantly, substantially deeply reformed as needed, it will mean more debt relief on the other side,” she said.
But equally, she pointed out, no amount of debt relief will actually make the pension system sustainable. Greece would currently have to devote 10 pct of GDP in its annual budget to keep the pension system afloat and this was not sustainable, she added.
“This is not sustainable, the average in Europe is 2.5% of GDP. So it all needs to add up but at the same time the Greek pension system needs to be sustainable in the medium and long term, and that requires taking short term measures now that will last in order to make it sustainable,” she explained.
Lagarde also denied that the IMF was pushing for “draconian” measures in Greece:
“We have said all along that the fiscal consolidation should not be excessive, so that the economy could continue to work and eventually expand, but it needs to add up. The pension system needs to be reformed, the tax collection system needs to be improved so that revenue comes in, evasion is stopped, and the debt relief by the other European must accompany that process.”
For this reason, the IMF would very attentive to the sustainability of the reforms, she added. “We want that country to succeed at the end of the day, but it has to succeed in real life, not on paper,” she said.