Greece’s euro-area creditors and the International Monetary Fund failed to resolve their differences over how to ease the country’s debt at a meeting held on the sidelines of the G7 meeting in Whistler, Canada, throwing into question the fund’s role just two months before the euro area’s final crisis-era bailout comes to an end.
The sides didn’t reach a compromise over the measures needed to ease Greece’s debt load, as the Washington-based IMF and euro-area governments led by Germany continue to disagree on the size and scope of relief necessary to ensure Athens can meet future obligations.
Officials said some progress was made in the meeting and talks between the two sides would continue next week. Still, with time running out, the persisting impasse raises questions about whether the fund will be able to activate its dormant credit line for Greece. While IMF cash isn’t needed, disbursing funds would signal to markets that the global financial institution deemed the country’s debt to be sustainable.
A decision by the IMF not to activate its lifeline for Greece would be a blow for countries like Germany and the Netherlands, which have sought the fund’s seal of approval as evidence that their medicine succeeded in putting the country’s finances on a viable footing. But the same countries have also been the most reluctant to grant greater debt relief and want it to be tied to strict conditions so that Athens doesn’t stray from its agreed budget path and economic overhauls.
With the disagreement persisting on debt, the euro-area will have to rush to reach a deal on multiple fronts if it intends to meet its goal of wrapping up Greek bailout talks by June 21, when finance minister are set to meet in Luxembourg.
Line vs Buffer
A deal is also being sought on the level of scrutiny Greece will be under after it exits eight years of bailouts. A consensus has emerged on an “enhanced surveillance” regime, whereby Greece will be subject to close monitoring by its former bailout supervisors, and some debt measures will be tied to the country adhering to pre-agreed economic targets and overhauls.
While such a regime is stricter than the monitoring for countries like Ireland or Portugal, it is still short of a precautionary credit line, an option favored by the European Central Bank and Bank of Greece. A credit line would be a backstop in case Athens struggles with market access and, crucially, would let the nation’s banks retain their access to cheap ECB liquidity.
However, such an option is politically toxic for the government, which sees it as an extension of bailouts that required harsh austerity measures. Instead, the government in Athens and other creditors want to help the country build a cash buffer of about 20 billion euros ($23 billion) to cover financing needs for as long as 1 1/2 years after the bailout ends in August.
The Athens government hopes that this would ensure that Greece doesn’t find itself in a position where it struggles to meet payments falling due and will have enough time to return to the financial markets to refinance its debt obligations.