Greece debt crisis: IMF staff baulk at signing up to new bailout deal

Objections from fund’s economists throw Athens rescue into doubt all over again

Ben Chu
Friday 31 July 2015 01:53 BST
IMF staff are currently unwilling to take part in the new €86bn (£60bn) bailout for Greece
IMF staff are currently unwilling to take part in the new €86bn (£60bn) bailout for Greece (Getty)

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The International Monetary Fund has thrown the Greek bailout into jeopardy once again after it emerged that staff at the IMF are currently unwilling to take part in the new rescue deal.

Leaked minutes of the fund’s latest board meeting, which took place on Wednesday, showed staff “cannot reach agreement at this stage” on whether to take part in the new €86bn (£60bn) bailout for Greece. The document said there were doubts over the capacity of the Athens Government to implement economic reforms, as well as the over the sustainability of the country’s sovereign debt pile, which is now projected to hit 200 per cent of GDP.

The German Chancellor, Angela Merkel, only sanctioned a new Greek deal earlier this month on the condition that the IMF takes part.

If the fund fails to sign up, the rescue package might not win the approval of the German Parliament, potentially throwing Greece’s future in the single currency into doubt again.

The new bailout deal is supposed to be concluded by late August.

Earlier this month the Greek Prime Minister Alexis Tsipras caved in to the demands of Greece’s eurozone creditors at the 11th hour by agreeing to impose more public sector austerity in order to secure some breathing space for the country’s struggling banking system and to secure the cash Athens needs to avoid a default.

But the decision split his anti-austerity Syriza party, with more than 30 of Mr Tsipras’s own MPs rejecting tax-raising legislation in the Athens Parliament.

The German Chancellor, Angela Merkel, has insisted on IMF participation in the deal
The German Chancellor, Angela Merkel, has insisted on IMF participation in the deal (Getty)

Mr Tsipras announced that an internal Syriza referendum on his actions will be held on Sunday in a bid to reassert his authority. According to the IMF document, which was obtained by the Financial Times, the IMF’s staff will “participate in policy discussions” over Greece’s future, but will hold out on signing up until the eurozone creditors have “agreed on debt relief”. The move by the IMF could be intended to pressurise creditors into restructuring Greece’s €316bn debt sooner rather than later.

The creditors have agreed to debt relief in principle, but the subject is politically explosive across the eurozone and Germany has insisted the issue cannot be broached until Greece has implemented reforms.

The IMF’s staff could ultimately be instructed by the fund’s board – made up of member states – to take part. But the leaked minutes also apparently reflect a deep sense of frustration among states from outside Europe over the IMF’s involvement in successive Greek bailouts since 2010. According to the board minutes, members from Asia, Brazil and Canada warned of the need to “protect the reputation of the fund”.

Former staff members of the IMF argue that the fund broke its own rules in 2010 when it agreed to take part in the original bailout, without an immediate debt-relief programme for Greece.

The managing director of the IMF, Christine Lagarde, has been pushing in recent weeks for creditor countries to agree to write down the country’s debt. She is up for re-election next year and will need broad support from the fund’s international membership to continue in the post.

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