World Economy

Eurozone, IMF Split Over Greece Reform

Eurozone, IMF Split Over Greece ReformEurozone, IMF Split Over Greece Reform

Eurozone lenders and the International Monetary Fund disagree over how much more Greece needs to do to reform its economy, a dispute that may delay new payouts and the start of debt relief talks, officials said.

Greece has been kept afloat since 2010 by IMF and Eurozone bailouts. The lenders have disagreed in the past, but they have managed to resolve their issues before they got much publicity. But after Athens had to ask for a third bailout last year, officials said that some in the IMF wanted to stay out of yet another program unless they were sure it would get Greece back on its feet.

“The main problem now is disagreement between the institutions, because that will harm the credibility of any solution,” one senior official said to Reuters. “They must get their act together and agree on a scenario and on policy measures.”

IMF and Eurozone officials hope to reach a compromise on Greece in talks this week, before a meeting of Eurozone finance ministers on Monday. Senior officials from both sides are to meet for dinner on Wednesday in Brussels to discuss the issue. Until the Eurozone and the IMF agree, they cannot decide if Greece has met the first requirements for the payout of new loans. Nor can the Eurozone start discussions with Athens on debt relief that would help make Greece’s huge debt sustainable.

Greece has no major debt redemptions due until July, giving the lenders and Athens time to find a compromise. But the drawn- out talks undermine investor confidence.

“If we now enter a cycle of whether this review will be concluded or not, it will generate the kind of insecurity we more or less had last year ... with the loss of confidence and capital flight,” a third official close to the lenders said.

The dispute focuses on what the country needs to do to reach a 3.5 percent primary surplus in 2018 and keep it there so that it no longer has to borrow from other Eurozone governments to remain solvent. Officials said the IMF had a more cautious outlook than Eurozone institutions on Greek economic growth and fiscal performance, as experience showed Athens underperformed targets.

The IMF believes Greece’s primary surplus in 2018 will be around 2 percent with the current reforms. Growth will be about a percentage point lower than forecast by the Eurozone. Greece should therefore be more ambitious with reforms, especially with the most politically difficult, pension reform.