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Lagarde: IMF participation only if Greece’s debt is sustainable

The International Monetary Fund participate in the Greek program only if the country’s debt is judged as sustainable, the Fund’s managing director Christine Lagarde said in an interview to representatives of leading European newspapers. Additionally, she said talks over the Greek debt must first be completed before the IMF decides on whether or not it will rejoin the bailout as a lender. At the same time, she criticized the European primary surplus of 3.5%. “In the long term, we believe that a 1.5% primary surplus is sensible given all that the economy has gone through, and given the Greeks’ capacity to reform. If the Europeans determine differently, then we need to take that into account. But we cannot adopt unreasonable forecasts or build unjustifiable macroeconomic frameworks.”

Excerpt from Lagarde’s interview on Greece

QUESTION – You just made clear the IMF didn’t make any final decision on Greece. But did you make any progress in reconciling the two views, the European and IMF, regarding the long term fiscal surplus?

MS. LAGARDE – There are two aspects to it. One is short term, which is part of the ESM program and would be part of our own program– if we were to have one. And second, there is the longer-term fiscal path going forward, which will determine the debt sustainability analysis. In both areas, we need to converge as much as possible. But clearly, whatever the IMF would finance–if we were to join–would be on the basis of both the fiscal path and our debt sustainability analysis.

In the long term, we believe that a 1.5% primary surplus is sensible given all that the economy has gone through, and given the Greeks’ capacity to reform. If the Europeans determine differently, then we need to take that into account. But we cannot adopt unreasonable forecasts or build unjustifiable macroeconomic frameworks.

QUESTION – Is it conceivable that the IMF would not take part in the program? There are also grumbles on Capitol hill about the IMF lending too much money to Greece for too long. Do you have to balance these two dimensions?

MS. LAGARDE – It is plausible that the IMF would participate in a Greek program, as the Greek government has requested, if significant reforms are legislated to be implemented, and if debt is restructured to accommodate our debt sustainability analysis–conducted in accordance with the IMF’s rules. So, it is plausible. And we have seen progress on the first part.

The volume of our possible financial commitment is not going to be necessarily the most important contribution that we make–because the European Stability Mechanism is very well financed. It is more our discipline, our integrity, and our expertise generated over so many years that is actually a greater value to Europeans.

QUESTION – Without a debt restructure upfront, the IMF will not participate?

MS. LAGARDE – If the Greek debt is not sustainable in accordance with the IMF’s rules and on the basis of reasonable parameters, we will not participate in the program.

QUESTION – Is the staff of the IMF now convinced that the debt is not sustainable as it is?

MS. LAGARDE – Based on the debt sustainability analysis, we will determine how much debt needs to be restructured. But there is no question in our mind that a degree of debt restructuring is needed.

QUESTION – Why is the IMF taking even more time than the Eurogroup to decide on Greece?

MS. LAGARDE – Because we want ‘two legs’ for the program. We need solid reforms, and we are getting there: the team is going to be back in Greece to negotiate, fine-tune, put things on paper, so as to be a binding agreement between all the parties. So, we need solid reforms–and we need debt that is sustainable. And for that, restructuring will be needed. We do not have that yet, and the discussion on that needs to be completed.

Lagarde did not speak only about Greece but about other European countries.

On Germany, she said

“Countries that have excessive imbalances should look at ways to reduce them, taking into account the particularities of their own economy. Germany, with its aging population, should have, and can legitimately aim to have, a degree of surplus, but not to the extent we see at the moment: 4% would perhaps be justified, but 8 % is not. The good news is that Germany has already begun investing–including the funding of refugees; it has also begun investing in infrastructure. But it is a slow process and our recommendation is for still more of these investments, for example, in more broadband. It should also be noted that Germany is one of the few countries to financially commit 0.7 percent of GDP to global development.”

Lagarde praised Spain’s reforms and spoke of ‘success story’.

QUESTION – Can we talk about a success story in Spain with unemployment rate at 18%, young unemployment rate at 40%, public debt at 100% and still growing, high external debt and risk of poverty and lack of job stability?

MS. LAGARDE – The mission is not yet accomplished, but real efforts and good progress have been made. My grand-mother used to say: ‘everything is better with butter.’ I will say: everything is better with growth. And Spain has growth now; a growth momentum that is higher than anywhere else in the EU–except in UK perhaps–and certainly the highest in the euro area. Hopefully this will translate into more employment and higher incomes, and reform of the labor market.

Crucial decisions on IMF participation will be taken at the so-called Spring Meetings, when governors of the World Bank and the IMF gather in Washington DC from 21 – 23 April 2017.

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One comment

  1. The stupid woman of 500+ thousand dollars salary per year talked again, claiming what she will take back in two days’ time.
    She is a puppet OK, but I never cease to be amazed at the size of her inadequacy.