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Lagarde like Schaeuble: First Reforms then Debt Relief Measures

The International Monetary Fund fully adopted the line of German Finance Minister Wolfgang Schaeuble. Managing Director Christine Lagarde said that debt restructuring for Greece was needed but the IMF will not insist on upfront debt relief measures. Modalities must be decided upfront, Lagarde said adding that the IMF is  still debating how the Fund would lend to the country.

International Monetary Fund chief Christine Lagarde on Wednesday said Greece was heading in the right direction on reforms but talks on its bailout and the IMF’s potential role in it were “only halfway through”.

Greece and its international lenders are negotiating reforms the country needs to carry out to maintain a sustainable growth path in the years following the end of its bailout programme, which ends in mid-2018.

“What I have seen in the last couple of weeks is heading in the right direction. We are only halfway through in the discussions,” Lagarde told a conference in Brussels.

Last week, euro zone finance ministers agreed the “overarching elements” of reforms needed in Greece in exchange for a new loan under its 86-billion-euro programme, the third since 2010.

The new loan is needed to pay debt due in July. Talks are continuing and no date is fixed yet for the return of negotiators to Athens. The Greek government believes negotiators could go back to Greece after the IMF Spring Meetings on April 21-23.

“We are still elaborating under what terms we could possibly give some lending to the country. We are not there yet,” Lagarde said, adding any IMF loan to Greece would have to abide by strict conditions.

She said debt restructuring will be needed to guarantee the sustainability of Greek finances. The scope of the restructuring “will be decided at the end of the programme,” but “the modalities have to be decided upfront,” Lagarde said.

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2 comments

  1. The economic logic is so insane.

    The debt and pension ratio to GDP remains high and unsustainable as GDP been drastically reduced (to pay interest, borrowing costs etc). It is not sustainable as the potential tax base has been reduced by increasing unemployment, lowering wages, increasing poverty and by driving younger potential taxpayers aboard to find a living.

    I’ll repeat, pensions are increasingly unsustainable as the ability to pay taxes and the actual tax base (what the government can call on to pay taxes) has and will continue shrink.

    Therefore, what Lagarde calls as sensible, “to enlarge the tax base” is to squeeze more taxes from a shrinking tax base to sustain a primary surpluses (another way of saying austerity but allows you to say in public the IMF does not want austerity). This will eventually mean registering every single man, women (and wine), child, dog, cat, magic mushroom in the country to sustain pensions. Alternatively they could introduce a 110% tax rate (10% for administration) on pension incomes and seize the property of pensioners for the unpaid 10%.

    So again forget economics. Its dirty stereo-typing politics. Here’s piece from today’s Financial Times to hammer in the nail

    (“Schulz sticks to Germany’s austerity recipe for EU” https://www.ft…………
    “Mr Schulz is under pressure to overcome the perception among German voters that her is soft on Greece and other indebted eurozone countreis. Many of them view Ms Merkel and Mr chauble, seen as the champions of fiscal rectitude and scourges of the southern European laxity, as the more credible candidates”

    So how is it possible to live in country where your future is decided by voters of another electing candidates according to how hard they’ll beat you up.

    Its so bad, that even if you wave a white flag, when election time comes round they will come back and beat you up.

  2. Surprise, surprise…honor among thieves.