The global lender has made itself unpopular with both sides in the Greek debt saga by playing its role as a teller of inconvenient truths without excessive diplomacy.
Its latest intervention, saying in essence that Greece will never be able to repay its debt mountain, is bound to sharpen debate when the German parliament meets tomorrow to decide whether to authorise negotiations on a third bailout for Greece since 2010 that could cost an extra €85bn.
It sharpens an unadmitted rift between Chancellor Angela Merkel, who wants to hold the eurozone together, and Finance Minister Wolfgang Schaeuble, who thinks Greece needs to leave the currency area, at least temporarily. Ms Merkel can count on a big majority in favour of opening loan talks with Athens due to her grand coalition’s near monopoly of seats, although she may face an embarrassing revolt among her own conservatives.
But the IMF’s debt sustainability analysis may force her within months to choose between two far more unpalatable options: grant massive debt relief or see the IMF walk away. The report’s conclusion that Greece needs debt relief “on a scale that would need to go well beyond what has been under consideration to date” makes it harder for her to argue that Germany will ever get much of its €57bn exposure back.
The IMF released its findings late on Tuesday after Reuters had reported exclusively the study showing Greek debt rising to 200% output in the next two years and staying at “highly unsustainable” levels for decades. To avoid big writedowns — “deep upfront haircuts” in IMF-speak — Greece would have to be given either a 30-year grace period before it starts servicing or repaying all European loans, present and future, or large fiscal transfers by the eurozone.
The European Commission issued its own, less stark forecast yesterday, which said the Greek debt-to-GDP ratio would be 165% in 2020 and 150% in 2022 if Athens made reforms.
It accepted that Greece needs “a very substantial re-profiling, such as a long extension of maturities of existing and new loans, interest deferral and financing at AAA rates”, but gave no figures. Commission vice-president Valdis Dombrovskis, presenting the EU executive’s study, said what mattered was not the size of the debt stock but the annual debt service cost, which is already lower in Greece than in most eurozone countries because of an existing 10-year holiday on most payments.
Germany is by no means alone in opposing any outright write-off of Greek debt to European governments. Countries like Spain, Portugal and Ireland that went through their own programmes successfully and paid towards Greece’s bailout do not want to take any loss. Slovakia and the Baltic states, which carried out wrenching fiscal adjustments, are just as tough, as are the Netherlands and Finland under pressure from anti-bailout eurosceptics.
Ms Merkel has stated publicly that there cannot be a “classic haircut” because that would be illegal under the EU treaty.