By Helena Smith in Athens
IMF distances itself from policies underpinning bailout as Greek officials worry that war of words may lead to IMF pulling out of rescue programme
The row over how to stabilise the indebted Greek economy has resurfaced with renewed vigour after the European Union on Tuesday angrily rejected charges by the International Monetary Fund (IMF) that its current rescue programme is “not credible”.
The spectre of the country’s economic crisis flaring up again deepened as the extent of the differences between creditors was laid bare. Caught in the middle, Athens also ratcheted up the rhetoric, as its finance minister told the Guardian that the IMF was “economising with the truth”.
“Greece is being boxed into a corner,” said Euclid Tsakalotos, claiming that the country was under intense pressure to specify new austerity measures that made “no economic or political sense”.
The war of words intensified after the IMF issued a 1,300-word statement distancing itself from the economic policies underpinning the nation’s latest bailout.
The adjustment programme agreed last summer in exchange for €86bn (£72bn) worth of rescue loans – a plan the IMF has so far refused to support – was based on measures that were “unfriendly to growth”, wrote Poul Thomsen, who directs the IMF’s European department, and Maurice Obstfeld, its chief economist.
“It is not the IMF that is demanding more austerity,” the officials argued in a blog published late on Monday. “If Greece agrees with its European partners on ambitious fiscal targets, don’t criticise the IMF … when we ask to see the measures required to make such targets credible.”
Athens, they said, had agreed to achieve a budget surplus – where state tax income exceeds expenditure – of 3.5% of GDP once the bailout expired in 2018, a feat that was not feasible without further cuts, said the IMF.
On Tuesday, the European commission hit back, insisting that the economic fundamentals were not only sound, but working. “The European institutions consider that the policies of the ESM program are sound and if fully implemented can return Greece to sustainable growth and can allow Greece to regain market access,” said commission spokeswoman Annika Breidthardt.
The plan, she added, had undergone “several parts of scrutiny”, and even the European court of auditors had provided feedback, which had been taken into account.
The spat erupted as creditor mission chiefs arrived in Athens to continue what has become an increasingly vexed review of the programme. Prime minister Alexis Tsipras’ leftist-led administration had hoped to wrap up the review by the end of this month, paving the way for Greece to enter the European Central Bank’s quantitative easing programme early next year, which would allow the ECB to buy Greek sovereign debt. That, officials claim, would allow further discussions on debt relief seen as crucial if the recession-ravaged Greek economy is ever to recover.
Hopes of a political breakthrough are now resting on meetings Tsipras will have later this week with German and French leaders.
But on past form, lenders are unlikely to yield, and Greek officials are now worrying that the row could be the precursor of the IMF pulling out of the programme altogether. Berlin, the biggest provider of the rescue monies poured into the three bailouts Athens has received since 2010, says IMF participation is a condition of further disbursement of funds. But it disagrees vehemently over the need to restructure the country’s €330bn debt pile. If there is no resolution, the risk of Grexit – forced ejection from the euro – will also grow.
“The IMF is economising with the truth when it says it is not asking for more austerity but rather is the victim of Greece’s bizarre predilection to ‘agree’ to higher primary fiscal targets of 3.5% of GDP,” said Tsakalotos. “Greece has not ‘agreed’ to anything yet.”
Tsakalotos charged that the IMF was advocating policies that were bound to increase inequality and social exclusion – contradicting its own self-avowed goal of inclusive growth.
“In effect it is arguing for Greek pensioners and poorer wage earners to make further economies,” he continued, conceding that Athens had proposed a primary surplus target of 2.5% which neither the EU nor IMF had deigned to consider. “Greek expenditure on both pensions and other subsidies is about 70% of the EU average and 52% of that of Germany.”
Last week, Tsipras announced a one-off special Christmas bonus for pensioners surviving on €800 or less a month – a move that provoked further ire in Brussels.
On Tuesday he went a step further, describing IMF staff as “irrational technocrats” and saying that far-flung isles close to Turkey that had borne the brunt of the refugee crisis would henceforth be exempt from a special VAT tax also demanded by creditors.
“Citizens on these islands must feel sure that the state is looking after them,” he announced during a flying visit to the tiny isle of Nisyros. “They are shouldering the burden of reception and hospitality and, ultimately, the entire burden of Europe … We will keep to the programme, but we are not going to ask anyone about giving surplus money to those most in need.”