IMF warns of difficult decisions over Greek bailout
Plans for a second international bailout of Greece are taking shape, with a proposal for a three-year package worth €80-€100 billion set to be ready in the next two weeks.
A senior Greek official said the government expected parliament to vote by the end of June on its medium-term austerity plan, a condition for the new package as Athens struggles to avoid defaulting on its debt.
But the IMF’s senior representative in Greece, Bob Traa, said the European Union needed to do more before the fund’s board could release more loans.
“I believe there is a summit in Europe, in June, where some hard nuts need to be cracked. They need to make some decisions, and then we will go to our board and disburse in early July,” he said.
Mr Traa also warned that a major restructuring of Greek debt would create untold problems in the eurozone.
A team from the IMF, EU and European Central Bank reached an agreement last Friday, under which Athens would impose more austerity and faster privatisation to cut its budget deficit.
But EU officials are struggling to find a solution for Greece’s financing needs for the next few years that avoids triggering a default but pushes some of the burden onto the private sector.
“What needs to be decided is how to fill the various parts of the financing. This is not something that we can do as a team,” Mr Traa said.
Greece agreed a €110bn rescue with the EU/IMF a year ago, which assumed Athens could resume borrowing commercially in early 2012. This is no longer feasible as yields on Greek debt are too high in the secondary market.
Details of the new deal to supersede the May 2010 rescue have yet to be worked out, but it assumes Greece’s funding needs will be covered by a mix of new EU/IMF loans, budget deficit cuts including tax increases and state asset sales, and a “voluntary” participation by private creditors.
One possibility is that creditors would agree to buy new Greek bonds when bonds they are currently holding mature, meaning Athens would not have to find cash for repayment.
However, credit rating agency Moody’s and the German banking association are sceptical of private investors assuming some of the debt burden.
“The involvement of private creditors can come only as a last step as part of a solution that is sustainable for all parties,” Germany’s BDB said. “That point has not yet been reached.”
