IMF will not join Greek bailout until Eurozone meets debt relief demands

The International Monetary Fund will refuse to participate in a third bailout for Greece until there is an “explicit and concrete agreement” on debt relief from its Eurozone creditors.

An IMF official insisted that Greece had to implement harsh austerity measures in return for debt relief, with both the debt-stricken country and its Eurozone countries having to take “difficult decisions”.

 “One should not be under the illusion that just one side can fix the problem,” the official said, adding that the IMF team in Athens, which is helping draw up a third bailout, would not “sit on the sidelines” and would participate actively in policy discussions over the coming weeks. 

Greek Prime Minister Alexis Tsipras on Thursday challenged members of his Syriza ruling party to support his decision to sign up for fresh spending cups and reforms demanded by the country’s creditors in return for a third bailout.

At a meeting of Syriza’s national council in Athens, Tsipras insisted that caving in to the country’s creditors was “not of our choice”, but the only alternative was to leave the Eurozone.

He offered party members two options: an internal “referendum” this Sunday, to consider the terms of the deal hammered out earlier this month; or an extraordinary party meeting in September. Through a show of hands, Syriza opted for the latter option.

Tsipras managed to pass the latest austerity measures in the Greek parliament with the backing of opposition parties, allowing talks on a third bailout to begin. However, he has yet to win the support of many in his own party who consider the reforms to go directly against the party’s pre-electoral pledges to end austerity.

Greece’s debt-to-GDP ratio has shot up to 175%, from the 120% level when it first received a bailout from the “troika” of the IMF, the European Central Bank and the European Commission in 2010.

While the details of the third bailout are yet to be finalised, the IMF appears to be challenging Greece’s other creditors, spearheaded by Germany, to soften their opposition to substantive debt relief.

The IMF’s own debt sustainability analysis, published in the aftermath of the negotiations between Tsipras and his Eurozone partners earlier this month, warned that Greece’s debt burden will soon become manageable without a lengthy moratorium on repayments, perhaps of up to 30 years, or a reduction in the debt’s face value.

Greece is due to make a massive €3.4 billion repayment to the ECB by 20 August, and the IMF’s decision to avoid getting involved immediately has rendered it increasingly unlikely that Greece will meet this deadline.

Greece is expected to seek a short-term bridging loan from its Eurozone partners to cover the ECB payment. However, without IMF involvement, the amount of Eurozone funding in the coming months is likely to be considerably higher.

The IMF’s role in the Eurozone bailouts has proven controversial since the first Greek bailout in 2010. However, the EC and the ECB felt that the IMF boosted the credibility of the bailouts, due to the tough conditions the fund attaches to financial aid.