The International Monetary Fund is urging finance ministers in the eurozone to get to the negotiation table and start working out a deal to provide Greece with debt relief because talks to find €3 billion of cuts in Greece’s budget have reached a stalemate.
IMF managing director Christine Lagarde sent a letter to 19 eurozone finance ministers urging them to put the prospect of debt relief on the table in negotiations with Greece.
If they fail to do so, the IMF’s participation could be at risk, the letter says. Lagarde’s letter was first reported by the Financial Times.
Business Insider has so far been unable to obtain a complete copy of Lagarde’s letter, but here are some of the key extracts, as reported by the FT (emphasis ours):
“We believe that specific [economic reform] measures, debt restructuring, and financing must now be discussed contemporaneously.
“For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them.”
Lagarde is urging action ahead of an emergency meeting of Greece’s creditors on Monday, after talks about so-called “contingency” budget cuts — which have gone on for a month — failed to find any solution.
In the letter, Lagarde also rebuffs critics who have suggested that the IMF is being “inflexible” and argues that the fund is fundamentally against the implementation of more austerity measures.
“A clarification is needed to clear unfounded allegations that the IMF is being inflexible, calling for unnecessary new fiscal measures and — as a result — causing a delay in negotiations and the disbursement of urgently needed funds,” she wrote.
The IMF, and its European chief Poul Thomsen, have been criticised by senior Greek officials for making overzealous demands regarding the country’s austerity programme in recent months.
In the letter, Lagarde also reiterates the IMF’s belief that Greece won’t be able to reach the 3.5% budget surplus by 2018 that is currently being mandated by the EU. A 1.5% surplus would be more realistic, she believes. Here’s Lagarde one final time (emphasis ours):
Let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive. We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting one-off measures as has been proposed in recent weeks.
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