Greece might be at the risk of exiting the eurozone in July as the country has difficulty reaching the fiscal targets required by the bailout program on time, a Wall Street Journal analysis says.
According to the report, the targets set by creditors, and especially the International Monetary Fund, are high and the refugee crisis that has been added on the shoulders of the Greek government would make things even harder.
The alternative would have been to aim for lower surpluses and restructure the nation’s debt. But European creditors, led by Germany, have consistently rejected that alternative.
The IMF insists that there are only two ways to fix Greece – either via more austerity centered on pension cuts or with a generous debt haircut from Europe.
The IMF is at loggerheads with Greece and European creditors, who don’t want to disburse more bailout funds without the IMF participation. The funds are essential for Greece that needs to repay its debts.
Europe and the IMF disagree on Greece’s fiscal targets and the 2016 budget. European institutions say that primary surpluses of 2.5-3 percent of GDP in 2018 would suffice while the IMF insists for 4.5 percent.
This translates to about 8 billion euros in austerity measures, something that would create an upheaval in Greek society. The IMF believes that reducing the primary surplus target would be politically realistic, but Greece would never be solvent that way.
On Tuesday, creditors returned to Athens to negotiate a list of austerity measures with Greece that might at least satisfy the European side. But, the report says, no matter what savings European creditors might find, the IMF would say that they are less than what is needed.
“Ms. Merkel may well have to pay a political price at home to give in to the IMF on some debt relief so that the IMF can agree to a lower fiscal target for Greece. Her only alternatives are to lose the IMF’s participation, which Germany has always said is vital or to test Greece’s political system to potential destruction, with massive pension cuts,” the WSJ analysis continues.
Even so, the Alexis Tsipras government would still have to cut pensions and tax benefits, something that would put at risk his fragile parliament majority.
The IMF will be pressured to compromise and lower its demands. But if finally there is no deal, then Greece will not receive the next bailout loan tranche and “will face default on about 3.5 billion euros of debts due in July, including bonds held by the European Central Bank. Grexit panic would be back,” the report concludes.
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