Lima, Peru.- The IMF on Friday issued an indirect but clear response to Eurogroup president’s earlier comments over the sustainability of Greek debt, with Poul Thomsen, the head of the International Monetary Fund’s European department saying that Greece cannot deal with its public debt through reforms alone and needs a significant extension of grace periods and longer maturities from its European creditors.
Thomsen, who served as a head of the IMF’s delegation to Greece, said that the risk of a resurging Greek crisis has been significantly contained following a new agreement signed by the Greek government in the summer. He noted that the Greek government seemed ready to discuss all necessary reforms and underlined that the reform agenda in Greece, particularly in the pension and fiscal fields, was large enough. However, he noted “we welcome the Greek government which seems to realize this necessity”.
“We think that Greek debt… has become highly unsustainable,” Poul Thomsen told a news conference in Lima, on the sidelines of a meeting of the IMF. “We think that Greece cannot deal with its debt without debt relief. Greece cannot deal with debt just through reforms and adjustment,” he said.
Thomsen said that the discussion on how to provide debt relief to Greece has shifted from a nominal haircut on the stock of its debt to capping gross financing needs and noted that “what the exact targets should be, we will have to discuss, but there is no doubt in our mind that if Europe wants to go the route of providing relief by lengthening the grace period and lengthening the repayment period, we are looking at a significant lengthening of the grace period and significant lengthening of the repayment period,” Thomsen said.
Greek authorities must carry out more reforms to the country’s pension system and in the way Greek banks are managed, Christine Lagarde, head of the International Monetary Fund said on Thursday.
Lagarde, presenting a Global Policy Agenda at the fund’s annual meeting with the World Bank in Peru, reiterated that the Greek debt was not sustainable and stressed that the Fund’s view over the issue has not changed since last July when the IMF released its debt sustainability report.
She underlined that the IMF was willing to help Greece following an official request made by the Greek government, but noted that a necessary precondition to approving any IMF financial help to Greece was that an adjustment programme should be based on two legs: the first is adopting and voting all significant reforms, such as reforms in the pension system and in bank governance. The second leg refers to debt sustainability and all initiatives necessary to ensure that the country’s debt was on a sustainable path.
Greek Finance Minister Euclid Tsakalotos was expected to discuss these issues during a meeting with Lagarde in Lima.