An IMF official reportedly told the media that the upcoming payment deadlines that will force through a deal, is the biggest guarantee that Greece and its creditors will finally reach an agreement on its debt burden.
Certain economic forecasts – key to determine how to make the Greek public debt more sustainable, were the bone of contention as European creditors and technical teams from the International Monetary Fund (IMF) have been unable to agree on the deal.
The process has also been delayed due to sensitive political issues, including the upcoming election in Germany. But an agreement will be reached in about three weeks’ time is ensured by the upcoming July repayments that Greece owes to creditors.
“Somebody needs to give something away. There’s confidence there will be a deal in three weeks’ time because of the time pressure,” the official reportedly told a media outlet.
“It is our goal to reach an agreement on June 15,” said an EU official, who has also knowledge of the talks, to the media.
The current impasse over its debt is also delaying further disbursements from its current bailout program and Greece has to t pay about 8 billion euros ($8.96 billion) to its creditors in July. Athens will struggle to repay its creditors without fresh money. And with an immediate effect on markets and investor sentiment, failing to make a payment to creditors would make the situation for the Greek economy even worse.
On June 15, the IMF and euro zone finance ministers are scheduled to meet. All sides were working “to try to come to a conclusion at the next Eurogroup”, said Eurogroup President Jeroen Dijsselbloem, who chairs such meetings, last Monday. An an eight-hour meeting in which the ministers had a “first in-depth discussion on the topic of debt sustainability’ preceded his comments.
IMF doubts that Greece will stop being an economic headache for the euro zone even though its officials are confident of an agreement on debt.
“Let’s be honest, it will take 20 years to fix Greece,” they said.
Despite being on its third bailout since 2010, several economists agree that Greece will need further financial assistance in the future. Two critical issues that haven’t been fixed are rigidness in the labor market and demographics, they have said.
“As an economist I would agree, but as an IMF official I can’t, we can’t go to our board and say we are working on a program, yet there will be another one in the future,” the official said.
“The board would say take all the necessary measures now so we don’t have another program in the future,” the source added.
“In particular, fiscal policies are still not conducive to growth. Half of wage earners are exempt from personal income tax, while the deficit of the pension system remains at a record high (10.5 percent of gross domestic product, almost four-times as high as the euro-area average),” the International Monetary Fund said in a blog post on February 7.
“For Greece to return to sustainable growth and exit successfully from official financing, it needs to deepen and accelerate reforms,” the blog post stated.
(Adapted from CNBC)