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1. IMF vs the ESM
This week witnessed an unusual public row between the IMF and the head of the EU’s bailout-arm, known as the European Stability Mechanism (ESM).
Klaus Regling called the IMF’s damning audit of Greece’s debt burden — “highly unsustainable,” in the Fund’s words — “not appropriate” in an op-ed in the Financial Times.
He contended that the IMF got its analysis wrong, as it doesn’t take the ESM’s very long-term loans and low interest rates into consideration. The IMF also “ignores the pledge made by Greece’s eurozone partners” for additional debt relief, “should there be a need for it,” the ESM chief wrote.
But the Fund has stuck to its guns, with its head Christine Lagarde characterizing her organization as playing the role of the “ruthless truth-teller” with its report on the state of the Greek economy.
A particular sticking point for the IMF is the EU creditors’ budget surplus target of 3.5 percent of Greece’s economic output by 2018, which the Fund says is too ambitious. In turn, however, the IMF wants Athens to make further cuts to pension handouts once the program is over. Alas, this is something the Greeks are dead set against.
2. Greeks vs the IMF
As if the fight between the IMF and the ESM wasn’t enough, the embattled Greeks have also come out swinging.
On Thursday, the new Greek alternate foreign minister for EU affairs, George Katrougalos, launched a stinging attack against the IMF over its “irresponsible demands,” including “insistence to open issues that were closed … like the pension review.” He went on to argue that Greece would have “already reached an agreement with our EU partners in December, had it not been for the IMF.”
For now, the eurozone countries are putting up a united front against the IMF’s position and are seeking a compromise deal to move the talks forward.
To achieve that, Greece’s Finance Minister Euclid Tsakalotos is expected to meet with EU creditors and Eurogroup President Jeroen Dijsselbloem on Friday to talk about measures that would serve as a back-up, in case Greece is unable to maintain its budget surplus target of 3.5 percent after 2018.
3. Europe vs ‘Grexit’?
An agreement between the parties would open the door for EU officials to travel to Athens next week to conclude the latest round of bailout talks.
If that happens, there’s a chance that the details can be agreed by February 20 and sanctioned by the Dutch parliament, ahead of the country’s March elections. The IMF may then also finally decide to participate.
But if no deal is reached before the Eurogroup meeting, then talks will drag on even as Greece will begin facing debt payments, an EU source said. In April, Athens must pay back €1.4 billion to the European Central Bank.
Katrougalos refused to confirm that his country was running out of cash, insisting that “we can survive without an agreement [in February].”
That might be the case for the spring. But an official close to the talks has said maturing government debt and interest payments by July will cost the Hellenic government more than €13 billion.
EU officials involved in the negotiations insisted that talks are going well. But no one is ready to say it’s a done deal.
In any case, how the current Greek debt episode will end will become clearer next week. Until then, the only thing certain is that time is running out.