The International Monetary Fund had a sobering message for Greece this weekend: Even if the country secures debt relief from its European creditors—a question that is by no means assured with bailout talks still deadlocked—the nation still needs even more painful economic overhauls than currently planned.
Seven years into an economic crisis and another near-term financial emergency looming, that is a message no Greek wants to hear and a key reason why the IMF is also urging Germany and Athens’ other European creditors to give the country hope in the form of real debt relief.
The country’s “fiscal and structural reforms…pension reforms, tax reforms, are only a down payment,” said Poul Thomsen, IMF’s European department chief and Greece’s original bailout architect, on the sidelines of the fund’s semiannual meeting of finance ministers and central bankers.
To bring the country’s unemployment and income levels back to precrisis rates will take “deep structural reforms, many of which are not yet on the books,” he said. The jobless rate is currently at 22% and half of all the youth labor force are without work.
“This is a long-term project,” he said.
Mr. Thomsen, along with IMF Managing Director Christine Lagarde, met with Finance Minister Euclid Tsakalotos over the weekend ahead of a return of the fund to Athens next week. Although bailout talks continue, the fund hasn’t been involved in emergency financing for the country in three years, and future funding from the IMF is an open question.
Fund officials worry the Greece’s existing efforts are stretching the nation’s political and social limits to their breaking point.
Analysts say Greece’s crisis could be the thread that unravels the currency union, especially amid Britain’s rejection of the European Union and rising anti-euro parties in key upcoming elections.
Τhe IMF says those projections aren’t credible and is sticking to its call for Europe to give Greece real debt relief, in part trying to regain credibility it lost in the first failed bailout.
“The issue is not the targets and the credibility of the targets in the short run, but the credibility of targets being maintained over the medium-term while the economy is growing,” said Mr. Thomsen. “We need a package that’s credible, both in terms of the policies and in terms of the debt relief needed to improve debt sustainability.” (Full article WallStreetJournal)