(HB) Greece is fast running out of money. Meanwhile the EU and IMF squabble about debt relief and just how fast the Greek economy is expected to grow.
Finance Minister Wolfgang Schäuble attacked the International Monetary Fund for being too pessimistic about Greece as part of an international row over debt relief that is delaying urgently needed funds.
Euro zone finance ministers failed to agree with the IMF on debt relief terms for Greece last week, meaning that the country has not yet received urgently needed funds from the €86 billion rescue package. The funds would allow Greece to repay €7.3 billion in loans due in July.
Mr. Schäuble said disagreements over Greek prospects were at the heart of the matter.
“We’re arguing with the IMF about what is the right growth assumption for Greece for the next 40 to 50 years,” he said.
Mr. Schäuble said the IMF wasn’t prepared to assume that Greece was able to generate more than 1 percent annual growth over the next 40 years.
If Greece only managed 1 percent growth, it would be unable to raise the taxes to service its debts – these amount to €314 billion ($343 billion), close to 200 percent of its GDP.
The IMF argues that Greece’s debt is unsustainable given its weak growth outlook and that it can’t join in the latest EU bailout package unless part of the country’s debt is written off, something Mr. Schäuble is reluctant to do.
Instead, he is going with the EU Commission’s more optimistic forecast for Greece, estimating annual growth of 1.25 percent which makes a huge difference when extrapolated over 40 years.
The EU lenders – the European Commission, European Central Bank and the European Stability Mechanism bailout fund – want the IMF to join the bailout because it would bring in an outside enforcer to pressure Greece into implementing the reforms being demanded in return for aid.
But Chancellor Angela Merkel, seeking a fourth term in an election in September, doesn’t want to anger German taxpayers by writing off any Greek debt.
Sources said new French president, Emmanuel Macron, and finance minister, Bruno Le Maire, have weighed in by proposing an alternative solution: Linking possible debt relief to growth.
If growth improves, Athens would have to repay its debt as planned. But if the economy slows, Greece would be allowed to stretch out payments. Details could be agreed at the June 15 ministers’ meeting, according to the French.
An EU Commission paper seen by Handelsblatt argues that the Greek economy has potential. It points out the government had yet to tap billions of euros in available EU funds to help stimulate growth and create jobs.