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Germany hints IMF can stay out of Greece’s bailout, as EZ and Fund seek last minute deal

Germany has hinted the International Monetary Fund can stay out of financing the third bailout for Greece as Berlin vehemently rejects debt relief. At the same time, Euro-zone  policy-makers will seek last-minute backing this week from the International Monetary Fund for their debt-relief offer to Greece, to ensure it is credible with markets and draws investors back to Greece after it exits its bailout.

According to reuters, the talks are to take place on the sidelines of a meeting of in Canada of finance ministers and central bankers from the world’s top seven economies, the G7, in June, officials involved in the negotiations said. The bailout ends on Aug. 20.

“This thing has to be done now,” one senior official involved in the talks said. If no deal is agreed by next Monday, the official said, the IMF would most likely not take part in the bailout at all.

After three successive bailouts since Athens lost market access in 2010, euro zone governments are now Greece’s main creditors, with total loans of 230 billion euros so far.

The IMF took part in the first two bailouts, but has refused to join in the third, which began in 2015. It says the euro zone must agree on how to make Greek debt, now at 179 percent of GDP, sustainable.

Euro zone finance ministers have argued they can only give such details towards the end of the three-year bailout. So the IMF has remained only an observer over the past three years.

Many euro zone countries, especially fiscal hawks like Germany, want the IMF on board to make sure private investors are ready to lend to Athens again and that Greece will not come back for more euro zone loans in a few years.

But at the same time Berlin does not like the IMF’s view that Greece needs substantial debt relief. Germany argues that if Greece keeps its primary surplus — its budget balance before debt costs — big enough for long enough, it might not be needed at all.

The IMF believes asking Greece to keep a high primary surplus for decades is unrealistic. It is also more cautious on Greek growth assumptions than the euro zone.

The IMF and the euro zone agree there should be no “haircut” – a reduction in the principal of the debt – but only an extension of maturities and grace periods.

To make sure that Greece does not reverse reforms after it gets the debt deal, the euro zone also wants a clause in the agreement that it would be null and void unless Greece keeps its primary surplus at 3.5 percent of GDP until at least 2022 — a condition the IMF is ready to accept.

Two days ago, Merkel’s conservative party CDU and its Bavarian sister party CSU in the coalition government, told Sueddeutsche Zeitung that the IMF’s participation in the third bailout was in principle not necessary as the 86 billion euros rescue funds would be far from being exhausted by August.

Budgetary spokesman of the CDU/CSU parliamentary group, Eckhardt  Rehberg, said The IMF has “played a key role in implementing important structural reforms in Greece”. This was an important goal of the aid program to be achieved. “There is basically no need for an additional IMF financial participation,” Rehberg continued. He pointed out that the € 86 billion provided by the ESM rescue fund would be far from exhausted by August.

This message is considered as a break with the line of former finance minister Wolfgang Schaeuble, who vehemently insisted on IMF’s participation, however, without a single sign of willingness to compromise.

Germany’s new Finance Minister, Olaf Scholz, had repeatedly refrained from speaking about  about Greece’s debt relief  saying the issue will be taken up after  the bailout exit in August. In an interview on Thursday, he said “We will decide about Greece’s debt relief  at the end of June.”

At the very end, Germany’s insistence against a debt relief is so striking that it would rather risk implementation of reforms and maybe another euro crisis in the future than accepting even a slightest IMF condition.

However, the crisis in Italy is haunting the euro zone and even the hawks in Berlin.

PS But we all know that Germany profits from the euro crises, so….


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