Greece should agree a new deal with its creditors as quickly as possible to avoid another crisis rocking the eurozone, the continent’s financial leaders have urged.
The currency area’s most troubled nation should meet with the IMF and other countries to thrash out a set of economic and financial reforms rapidly to avoid a prolonged period of chaos, according to EU financial services chief Valdis Dombrovskis.
“The reforms in the program are aimed at improving the competitiveness of the Greek economy and to give Greeks hope of a stable and secure future,” he told German newspaper Welt am Sonntag.
Officials at the IMF, which is headed by Christine Lagarde, fear Greece’s current fiscal path is unsustainable and that it needs debt relief from the other eurozone nations CREDIT: MARTIN BERNETTI/AFP/GETTY IMAGES
He was speaking after Greek Prime Minister Alexis Tsipras told his party the creditors would cut the country’s debts “sooner or later”.
That is a crucial bone of contention in the upcoming Eurogroup meeting at which the bailout will be discussed.
The International Monetary Fund (IMF) wants other eurozone countries to offer debt relief to Greece, writing off some of their loans in a bid to stop its debts running out of control once more.
But other countries reject that idea, with Germany’s finance minister arguing it breaks the terms of the Lisbon Treaty.
Mr Tsipras would prefer to see debt relief than any extra austerity, telling other nations to “be more careful towards a country that has been pillaged and people who have made, and are continuing to make, so many sacrifices in the name of Europe”.
He also reacted angrily to the idea from a minority of directors at the IMF that Greece should institute a new round of spending cuts, particularly in areas such as pensions.
Mr Tsipras said these “new demands for Greece” are “absurd, imaginary unreal, it doesn’t matter, as long as it is made to look like Greece is to blame”.
At the same time Christine Lagarde warned that political instability also threatens the continent.
“I am worried, as we all are, about some of these elections,” the IMF’s managing director told a conference in Dubai.
Votes this year include the French Presidential election which is expected to see Front National leader Marine Le Pen, who wants a referendum on taking France out of the euro, reach the second round easily.
The Dutch election could also give more power to the eurosceptic Geert Wilders, while Angela Merkel’s plans could be disrupted in the German elections later in the year.
The German vote in particular has consequences for the Greek bailout as direct cash transfers to Greece, rather than loans, as seen as unpopular in the country.
The Eurogroup meeting next Monday represents a key chance to turn the current arguments into concrete action, providing some certainty to Greece, its creditors and the financial markets, as well as the citizens affected.
Analysts at German bank Berenberg expect Greece to accept that it will implement more austerity if it fails to hit current deficit targets – a step which represents a compromise between the Greek and German positions currently.
“According to sources close to the negotiations, the EU and IMF have found a compromise and will demand from Greece fiscal measures worth circa 2pc of GDP, which would partly be triggered if Greece fails to meet the agreed 3.5pc primary surplus target,” said Berenberg’s Carsten Hesse.
“It is likely that Greece will accept the measures, with the Greek finance minister, Euclid Tsakalotos, keen to come to an agreement sooner rather than later. However, this could take some time as PM Alexis Tsipras might hope to get a better deal further down the line.”
Last week’s IMF report proposed further reforms including widening the tax base, cutting pensions, providing more financial support to the most vulnerable Greeks, and slashing red tape around some professions.
Source: The Telegraph