The International Monetary Fund’s board has been told Athens’ high debt levels and poor record of implementing reforms disqualify Greece from a third IMF bailout of the country, raising new questions over whether the institution will join the EU’s latest financial rescue.
The determination, presented by IMF staff at a two-hour board meeting on Wednesday, means that while IMF staff will participate in bailout negotiations currently under way in Athens, the Fund will not decide whether to agree a new programme for months — potentially into next year.
That delay could have significant repercussions, particularly in Germany, where officials have long said it would be impossible to win Bundestag approval for the new €86bn bailout without the IMF on board.
According to a four-page “strictly confidential” summary of Wednesday’s board meeting obtained by the Financial Times, IMF negotiators will “participate in policy discussions” to ensure the eurozone’s new bailout “is consistent with what the Fund has in mind”.
But they “cannot reach staff level agreement at this stage”. The Fund will only decide whether to participate during a “stage two” after Greece has “agreed on a comprehensive set of reforms” and, crucially, after eurozone bailout lenders have “agreed on debt relief”.
That condition could prove a sticking point since Berlin and other creditor governments have so far strongly resisted any suggestion of forgiving Greece’s debts.
According to the summary, Germany’s representative to the IMF board said Berlin “would have preferred the Fund . . . move in parallel” with the eurozone bailout talks. Instead, it now faces the prospect of trying to move an €86bn bailout through a sceptical Bundestag in a matter of weeks without the IMF’s imprimatur.
The IMF’s assessment adds another source of complexity just as Athens and its bailout monitors begin discussions in earnest in an attempt to conclude a deal before a tight August 20 deadline. While the creditors’ harbour misgivings, Alexis Tsipras, Greece’s prime minister, is also facing a mutiny from leftwing members of his Syriza party unhappy with the conditions attached to the bailout.
The IMF decided last week that its existing bailout programme, which was originally to run until March, needed to be scrapped because it could no longer achieve its stated goal of helping Greece recover to the point where it could return to private debt markets. The IMF then forced Athens to request a new IMF programme, which requires board approval, necessitating Wednesday’s meeting.
Some Greek officials suspect the IMF and Wolfgang Schäuble, the hardline German finance minister, are determined to scupper a Greek rescue despite this month’s agreement to move forward with a third bailout.
In a once-private teleconference made public this week, Yanis Varoufakis, the former finance minister, said he feared the Greek government would pass new rounds of economic reforms only for the IMF to pull the plug on the programme later this year.
“According to its own rules, the IMF cannot participate in any new bailout. I mean, they’ve already violated their rules twice to do so, but I don’t think they will do it a third time,” Mr Varoufakis said. “Dr Schäuble and the IMF have a common interest: they don’t want this deal to go ahead.”
Senior EU officials have insisted Christine Lagarde, the IMF managing director, signalled her willingness to participate in a new bailout at the high-stakes summit that agreed the new rescue earlier this month.
But Greece has become a growing source of rancour within the Fund and among its shareholders. People who have spoken with senior IMF officials said Ms Lagarde is facing a unified staff view that the Fund’s reputation is on the line and that it cannot agree to a new programme without significant changes.
According to the board minutes, several non-European board members – including from Asia, Brazil and Canada – warned about the need to “protect the reputation of the Fund”, and the document says Ms Lagarde acknowledged their concerns.
“[Ms Lagarde] stressed that in their engagement they have to be mindful about the reputation of the Fund,” the summary says.
According to the summary, IMF staff concluded Greece no longer clears two of the four requirements in the IMF’s “exceptional access criteria” — the Fund framework that allows it to grant bailouts of larger-than-normal size.
Under the criteria, a bailout recipient must be able to prove it has the “institutional and political capacity” to implement economic reforms, and that “there is a high probability that the member’s public debt is sustainable in the medium term”.
IMF staff determined that neither criterion has been met — and they would not know whether Athens would meet those benchmarks until the autumn.
“Greece wants to decide on some important reforms only in the fall and the Europeans only want to deal with the debt issue after the first review because they first want to rebuild trust,” the summary states. “The differences between the IMF’s thinking about the debt issue and what the Europeans are currently discussing are very large.”
At the early stages of the Greek crisis, the IMF waved the debt criteria because of rules allowing it to grant a bailout if there was “a high risk of international systemic spillover”. But IMF staff told the board this risk no longer existed because a Greek default would no longer hurt private bondholders, who now own a very small share of Greek debt.
“In 2010, the systemic waiver was applied as a restructuring of the debt in hands of the private creditors was needed to restore debt sustainability, which could have caused major contagion,” the minutes state. “Currently, a restructuring of official debt is required and staff could think only of a few instances in which public debt restructuring could create contagion.”