Europe, IMF Split over Amount of Reform Needed in Greece

European lenders and the International Monetary Fund (IMF) appear to have strong disagreements over how best to handle the Greek financial crisis. Because of those disagreements, Greece may suffer as new payouts and further debt relief talks are delayed while third parties clash over the details. 

European lenders and the International Monetary Fund (IMF) appear to have strong disagreements over how best to handle the Greek financial crisis. Because of those disagreements, Greece may suffer as new payouts and further debt relief talks are delayed while third parties clash over the details. 

Since 2010, Greece has been forced to rely on bailouts from the IMF and the Eurozone in order to continue to operate. In the past, these lenders have disagreed over the approach Greece needed to take to improve its economy, but they managed to resolve those disputes without significant fuss or media attention.

When Greece had to ask for a third bailout last year, however, the IMF felt it could not be as lax with the struggling European nation. After all, if the IMF wishes to see a return on its bailout funds, it needed to ensure that Greece would be able to get its economy back on its feet. The Eurozone lenders felt the same, but were willing to take greater risks than the IMF.

A senior official at the IMF, who wished to remain anonymous, said of the situation: “The main problem now is disagreement between the institutions, because that will harm the credibility of any solution…They must get their acts together and agree on a scenario and on policy measures.”

IMF and Eurozone officials have been negotiating this week, trying to reach a compromise on the Greece problem before Monday when the Eurozone finance ministers are scheduled to meet. Until an agreement is reached between the two parties, they cannot decide if Greece has fulfilled the requirements of its original bailouts or whether it qualifies for another. Furthermore, without agreed criteria, the Eurozone cannot start its discussions with Greece related to debt relief measures that would help keep the nation afloat. 

On a positive note, major debt redemptions would not begin until July, so the IMF, Eurozone, and Greece have a few more months to reach an agreement. The talks between these parties, however, have been drawn out to date, so it is entirely possible that negotiations will run up against this time limit. 

The primary point of contention relates to what Greece must do in order to achieve and maintain a 3.5% primary surplus in 2018. If it can do so, it should be able to remain solvent without further bailouts.  How the nation will reach that goal remains the sticking point between the Eurozone and the IMF. The IMF has had a more cautious approach than the Eurozone on the issues of Greek economic growth and fiscal performance. While the IMF prefers an “all at once” type approach, the Eurozone is more in favor of a staggered scheme, where changes occur over time and relate to current conditions. 

Although IMF participation is not, strictly speaking, necessary for the Eurozone to make the third bailout, it would greatly prefer IMF participation. In fact, many North European nations refuse to lend without IMF approval. The IMF, however, is unwilling to do so until the Eurozone’s views align with its own.