IMF Chief Warns Greece Can’t Meet Terms of Its Debt Deal

The International Monetary Fund is using its ongoing spring meetings in Washington to up the ante with Greece and Europe.

Late Thursday, IMF Managing Director Christine Lagarde urged Europe to give Athens at least some form of debt relief. Otherwise, she said, IMF would have to reconsider its contribution to a $97 billion bailout plan agreed to last year to pull Greece back from the edge of financial ruin.

“Currently, as envisaged, the debt is not sustainable and what is required is a debt operation,” Lagarde said.

Her comments mark a significant escalation of the standoff between Europe — led by Germany, which insists Greek Prime Minister Alexis Tsipras pay back all of what his country owes — and the emergency lending fund. Lawmakers in Berlin have said that without IMF participation in the bailout, Germany could not continue to contribute to it. Berlin is the largest contributor to Greece’s rescue package.

The IMF’s chief biggest gripe with Europe is over whether Greece can be expected to meet the budget surplus target set under the terms of the bailout. Under the terms of the bailout program, Greece must post a fiscal surplus of 3.5 percent of gross domestic product within two years. Lagarde does not believe this is possible, while Europe does.

Her comments sent Jeroen Dijsselbloem, head of the Eurogroup of eurozone finance ministers, scrambling to assure Wall Street and policymakers around the world that Europe is not headed toward another summer of brinkmanship with Athens. Greece has a $4 billion debt repayment due in July.  

“We’re getting very close [to an agreement over reform targets] so I’m not for all this crisis talk. If we concentrate on where we are, and try and push it through, we’ll get it done far before the summer,” Dijsselbloem said on CNBC Thursday.

He added, in a nod to Berlin, “I think the Greeks fully understand that the involvement of the IMF is very important for the European partners.”

The problem is that Athens has yet to submit, let alone approve, legislation to reform its pension system, raise the retirement age, and increase taxes — something it agreed to do to receive the first $26 billion tranche of the rescue payout. Though Tsipras agreed to harsh austerity in exchange for the bailout last summer, he has repeatedly demonized the IMF as the cause for his country’s fiscal pain.

Relations between Athens and the IMF have been especially tense since WikiLeaks published a readout of a phone call last month in which fund officials urged Germany to give Greece debt relief.

“We cannot have far-fetched fantasy hypotheticals concerning the future of the Greek economy,” Lagarde said Thursday. “Bottom line, it needs to all add up.”

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