The International Monetary FundĀ (IMF) is considering to present Greece with a “Cyprus-like” severe bailout plan proposal, according to a Financial Times report.
With Greece having difficulty meeting its domestic obligations in public sector salaries and pensions, it is very unlikely that Athens can make the 1.5-billion-euro installment repayment to the IMF in June. The country is locked in negotiations with international creditors in order to receiveĀ the last tranche of bailout cash, which is 7.2 billion euros. Creditors ask for reforms in exchange of further aid but Greek Prime Minister Alexis Tsipras is not willing to implement any austerity measures that will further burden Greek people. Negotiations have been fruitless so far.
On May 12, Athens made a repayment of 750 million euros to the Fund. The Financial Times report said that Tsipras wrote a letter to IMF’s Managing Director Christine Lagarde, warning that the “repayment would be missed unless the European Central Bank immediately raises its curbs on Greeceās ability to issue short-term debt.”
According to the report, Poul Thomsen, head of the IMF’s European Department, has warned the Fund’s board of directors that negotiations have been so unproductive that the IMF could be forced to withhold its 3.6 billion euros, whichĀ is the Fund’s portion of the tranche.
Thomsen said that the IMF remains flexible on which reforms Athens needs to implement. However, the Greek debt must be lowered to a sustainable level, the report noted.
“As a result, any watering down of Greeceās reform package or lowering its budget surplus targets ā positions advocated in some Eurozone capitals, including Brussels ā might require the EU to consider writedowns on its bailout loans in order for the IMF to assent, Mr. Thomsen told the board,” continued the report, written by Peter Spiegel.
The report cited IMF officials who were briefed on the board meeting. According to the officials, Lagarde fully backed Thomsen. A board member raised the possibility of presenting a “take-it-or-leave-it” proposal to Greece, just like in the case of Cyprus in 2013. The Cypriot government was presented with an austere bailout program, otherwise Cyprus would lose the support of the European Central Bank (ECB).
According to the Financial Times, the idea won the approval of certain European Finance Ministers, including Germany’s Wolfgang Schaeuble. The German official favors the scenario that Tsipras “would take the bailout ultimatum to a nationwide vote for approval.”
The report concluded that the “take-it-or-leave-it” approach was one of many ideas that were expressed regarding an agreement between Greece and its creditors.
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