Wall street Journal — The International Monetary Fund believes Greece’s debt is “highly unsustainable” and will reach 275% of gross domestic product by 2060 unless the country’s loans are significantly restructured, according to a draft confidential review of the country’s economy.
The assessment, prepared ahead of an IMF board meeting on Feb. 6 to decide on further involvement in the Greek bailout and what form this involvement will take.
The same report claims the IMF has judged the recent short-term debt relief measures as inadequate, with a restructuring necessary to make the debt load sustainable.
In touching on one of the core differences with European creditors over the Greek program, the IMF purportedly also stresses that primary budget surplus targets for Greece should fall under 1.5 percent of GDP after 2018 — instead of the current 3.5 percent.
A greater grace period for repayment, deferred interest rate payment until 2040, extension of other maturities for loans extended by European institutions until 2070 and a reduction of interest on all ESFS and ESM loans for 30 — under 1.5 percent — are the solutions ostensibly proposed by the Fund.
Early in 2016 the IMF abolished a “systemic exemption”, a rule created in 2010 that allowed it to participate in an international bailout of Greece despite doubts about the country’s debt sustainability.
Reeling from budget and banking crises in 2010, deeply indebted Greece did not meet the sustainability condition but the IMF decided that a debt restructuring could pose severe negative spillovers on the rest of the eurozone.
The IMF thus created the “systemic exemption” provision which paved the way for it to join the European Union and the European Central Bank in the so-called “troika” of international lenders throwing a lifeline to Greece.
For the IMF, that amounted to 30 billion euros in May 2010, then an additional 18 billion euros in a second bailout two years later.
As the abolition of this “systemic exemption” is already effectively in place, the IMF is demanding that the Europeans first agree to ease Greece’s debt burden to ensure its sustainability.
