The future of Greece’s €86 billion bailout — the third since the 2010 debt crisis — hangs in the balance in the absence of crucial backing from the International Monetary Fund (IMF), and with three European Union (EU) member states going to polls this year. Athens has to repay a loan instalment by July in order to avail of the next part of the rescue funds under the terms of the 2015 deal. To cross that hurdle, the Greek government has to satisfy the demands of both the creditors of the eurozone and the IMF. But there is uncertainty about the outcome, with the EU and the IMF at loggerheads over the health of the Greek economy and Athens unwilling to adopt a single euro more of austerity than what was agreed.
Asking for debt forgiveness
The rift is centred around a recent report by the IMF describing Greece’s public borrowings as being on an “explosive path”. The report further pointed out that the bailout target of a budget surplus of 3.5% of GDP was unrealistic, and reiterated the need for urgent debt relief. The IMF conceded that its 24-member executive board was divided over the issue after angry European reactions to these findings. But it did not back down on its repeated calls for at least partial debt forgiveness for Greece.
Significant also was the division on display between the EU states and other countries on the IMF’s assessment of the Greek economy. Jeroen Dijsselbloem, president of the Eurogroup of finance ministers, labelled the depiction as too pessimistic and the figures as outdated. He pointed to Greece’s impressive growth in recent quarters, accompanied by buoyancy in tax revenues. His strong criticism was echoed by fellow finance ministers of the single currency bloc, including Euclid Tsakalotos of Greece. The IMF’s demand that Parliament pre-legislate additional measures that would come into force should the country once again fail to meet fiscal targets has raised the hackles among Greek legislators.
Paradoxically, the IMF’s sober assessment of the Greek economy makes any substantial participation on its part in the rescue effort all the more untenable. Conversely, the credibility of the current bailout programme depends critically on direct involvement, including financial contributions from the body. Germany and other northern European creditor countries are especially concerned about the difficulty of garnering domestic political support in the absence of more direct backing from the IMF.
For now, Athens must pin its hopes on winning wider support for the IMF’s strong advocacy for debt relief, which is itself a significant shift from the stiff fiscal terms the organisation had set in the initial years of the eurozone crisis. Greek Prime Minister Alexis Tsipras has often emphasised the common destiny of the Greek people inside the EU. He is equally alive to the potential populist nationalist backlash in the upcoming elections in the Netherlands, France, and Germany.