Germany holds firm on Greek deficit

Germany yesterday held firm in insisting it was too soon to say that Greece deserved more time to meet its deficit-cutting goals, even as the head of the IMF laid out the case for leniency.

Although Greece, Spain, and the eurozone’s slow progress toward debt reform was centre stage at IMF meetings, there were some signs that Europe was edging forward in tackling the debt crisis.

The EU’s top economic official for the first time indicated how possible aid for Spain could work and an ECB policymaker endorsed a suggested extension of Greece’s budget deadlines.

In a softening of earlier advice, the IMF has argued that forcing Greece and other debt-laden countries in Europe to reduce their deficits too quickly is counter-productive, as it hurts the economy.

IMF managing director Christine Lagarde said Athens needed more breathing space.

“Given the... lack of growth, given the market pressure, given the efforts that have been undertaken, a bit more time is necessary,” said Lagarde.

Any steps that would raise Athens’ chances of succeeding were welcome, said ECB board member Benoit Coeure. But he said that a mooted two-year extension of Greece’s budget-balancing goal would come at a price of extra financing needs.

The shift was welcomed by some emerging market countries, as well as long- time critics who say the tough conditions attached to IMF loans make it harder for countries to grow their way out of debt.

The IMF’s change of tune on the speed of budget cuts stems from research showing harsh fiscal consolidation crimps growth more sharply than previously thought.

It also reflects a desire by Lagarde to demonstrate the IMF is willing to get tough with Europe.

Reuters