Eurozone officials have told Reuters that Greece appears to have second thoughts about a full-blown return to market funding. The report follows purported pressure on the Greek government from EU powers as well as investors who sold off Greek bonds this week – to resist calls to severe ties with the IMF, a funding program that is highly unpopular within Greece and the cause of severe political tension.
“There is recognition on the Greek side that a total cut-off from the euro zone and the IMF programmes is not in their best interest,” one euro zone official said. Another EU official said a sharp rise in Greek debt yields had been a “reality check,” while several officials referenced recent discussions at an EU finance ministers’ meeting in Luxembourg that helped helped change Greek minds.
A senior Greek government official denied reports that Athens is reconsidering its plans.
“This is not true. We reiterated our plan today. We outlined the same targets and a timeframe which we have already announced, following the same steady course: in agreement with our lenders and with persistence on reforms,” the official said.
Severing links to the IMF would mean that the Troika, a team of officials from the IMF, the European Commission and the European Central Bank that routinely checks up on Greek reform progress, would no longer monitor Greece’s economic recovery.
“From the point of view of Greek domestic politics it would be much better,” a second Greek official said. But officials in Athens have acknowledged that breaking ties to the IMF altogether will be fiercely opposed by Eurozone officials.
“It is about the credibility the IMF has with markets, the seal of approval that is important – we would like to have the IMF there,” said one senior Eurozone official.
Last week, IMF Head Christine Lagarde said that Greece would benefit from a precautionary credit line an instrument the IMF also has in its arsenal and that the IMF is determined to see an “evolution” of the relationship between Athens and the IMF, not an end to it.
On December 8, Eurozone finance ministers will officially determine if Greece will require a follow-up program to its combined Eurozone and IMF bailout, worth 240 billion euros.
If further funding is required from the Eurozone, one solution could be an Enhanced Conditions Credit Line (ECCL) from the Eurozone bailout fund, officials said.
Such a credit line would have its own set of conditions that Greece would be required to meet, meaning that the Eurozone would still retain some control over Greek reforms and would be present to ensure that conditions are being met. But the control would be substantially less hands-on than current oversight.
The ECCL would also allow Greece to remain eligible for the ECB’s programme of government bond purchases – only available to countries under an agreed reform program. It would also make Greece eligible for the ECB’s more recently announced plan to buy Asset-Backed Securities (ABS) and covered bonds.
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