Consensus on Greece bailout plan needed

The International Monetary Fund (IMF) is at loggerheads with European creditors regarding plans over ability of Greece to repay debts. While European Union (EU) insists it has already charted out plan for debt relief, the IMF says these plans are not strong enough, and will not bail out Athens from its current economic difficulties.
Under the EU programme, Greece is committed to posting a fiscal surplus before interest payments of 3.5 percent of gross domestic product within two years.
Given the current EU plans, the IMF doubts Greece’s ability to meet the budget surplus target set under an 86-billion-euro ($97 billion) bailout by euro-area governments, which are reviewing whether to release the loan’s second installment.
The IMF instead calls for Greece’s recovery plan based on “realism and sustainability”, insinuating its discomfort for EU action plans.
“Currently, as envisaged, the debt is not sustainable and what is required is a debt operation,” IMF Managing Director Christine Lagarde said.
To resolve this issue, the IMF links a new loan with a recovery plan that covers a number of sectors to kickstart the growth. It clearly stated it would depend on commitments from Greece and undertaking of the European partners.
Athens is feeling uneasy about the tough line taken by the IMF. Greek Prime Minister Alexis Tsipras wrote in an article published in the Financial Times that the IMF should stop tinkering with the country’s latest bailout with European creditors, blaming the global lender for causing a delay in talks.
The IMF underscored the debt relief needs to be calibrated on something it called more realistic. It urges Athens to implement a strong package of structural reforms and chart out credible plan for growth and fiscal adjustment.
Sticking to their plans, euro-area finance ministers rejected the notion that Greece’s debt is unsustainable, though they hinted the euro-zone governments might be willing to take further steps to make Greece’s debt more manageable if growth is weak.
IMF still believes Athens could further implement structural reforms,
particularly in tax collection. It cited Greece exempts 55 percent of households from taxes, compared to two percent in Portugal. So the IMF recommends broadening of the tax base.
Yet, Greece may have its own socioeconomic reasons of doing so. Apparently, Athens fears political backlash if more taxes touch the lower middle class.
It is cautiously doing its best. Greece’s government plans to submit bills on tax and pension reform in parliament next week, even though they haven’t been approved by creditors who may consider the move to be a unilateral decision.
As a deal on a third bailout for Greece, initially due by December, hangs in the balance, there are concerns the talks may drag into summer when the nation faces a large debt payment. But a delay in resolving the third bailout could increase volatility in European assets as uncertainty over Greece comes amid a deadlock in Spanish politics and the run-up to the UK’s vote on its membership in the EU.
European Commission vice-president Valdis Dombrovskis said that if the Greek government takes a few steps on fiscal targets, an agreement may be only a few weeks away.
The EU officials see the continuing role of the IMF in the aid programme for Greece is decisive even though the global body has repeatedly said it won’t lend Greece more money unless the country’s liabilities become sustainable through debt relief and spending cuts.
The EU and the IMF are quite aware Greece represents a potential source of market turbulence in the coming months. An escalation of the Greek situation alongside the UK referendum could further inflame volatility in the single currency.
The irony is that the IMF and EU are mindful of Athens’s acute difficulties, yet it is being pushed further to continue structural reforms. They have to strike a compromise that would ease the third bailout package.