The EU flag flies in front of the Parthenon in Athens on Saturday. Eurozone finance ministers on Friday approved the first €26bn of a third bailout package to help rebuild Greece’s economy. Photograph: Yorgos Karahalis/AP
Greece needs more significant debt relief from its creditors, the head of the International Monetary Fund said, after the bankrupt country accepted tough conditions to secure its third bailout deal in five years.
The first €26bn of a package worth more than three times that will be disbursed within days after the government in Athens grudgingly approved the agreement at the end of a marathon debate, and Germany backed down on its opposition to rescuing Greece.
However, the IMF managing director, Christine Lagarde, told eurozone ministers the deal did not go far enough in tackling the woes of a country grappling with a steadily shrinking economy and a growing debt burden. “I remain firmly of the view that Greece’s debt has become unsustainable,” Lagarde said. She called on Europe to make “concrete commitments … to provide significant debt relief, well beyond what has been considered so far”.
Lagarde also said she will not commit the IMF to joining the latest bailout until the board has reviewed the agreement, probably in the autumn. Officials said they want to see more details about reforms, particularly to pensions, but the delay will also give European leaders time to consider their stance on debt relief.
Germany holds more Greek debt than any other eurozone country and has repeatedly rejected any “haircut” on what Athens owes, but is also keen to keep the IMF involved in the bailout.
German finance minister Wolfgang Schäuble reiterated his opposition to an outright writedown of the face value of Greek debt in an interview with Deutsche Welle published on Saturday. He also said the scope for milder forms of debt relief, like extending debt maturities, was “not very big”, Reuters news agency reported.
But the IMF has taken an equally hard line, warning last month that, without an “explicit and concrete agreement” on debt relief, the fund will not participate in a new bailout.
According to analysis by the European commission, the European Central Bank and the eurozone bailout fund, Greece’s debts will peak at 201% of national output (GDP) in 2016, but still be 160% in 2022. The IMF views a debt-to-GDP ratio above 120% as unsustainable.
The IMF is a key part of Europe’s bailout plans because it can provide both funds that spare European countries some financial pain and a reputation for rigour that helps eurozone leaders convince financial markets and domestic parliaments that Greece will keep its commitments.
A parliamentary vote on the bailout package in Berlin on Wednesday is likely to expose fractures in Angela Merkel’s conservative ranks. A key ally described IMF involvement as a “condition” for the support of his party, Reuters reported, although Green and Social Democrat support is expected to get the deal through.
“If there is no firm commitment from the IMF to participate in the third aid package, then we have a new situation,” said Wolfgang Bosbach, a high-profile rebel on Greece from Merkel’s CDU party.