Senior officials at the G7 finance minister meeting in Dresden have admitted further loans and debt relief for Greece are unavoidable if – but only if – Athens cuts public pensions and clears other big items from its reform backlog.
Stepping up the pressure, International Monetary Fund chief Christine Lagarde told the Frankfurter Allgemeine daily a Greek exit from the euro zone was a "possibility" which, "while not a walk in the park . . . would not be the end of the euro".
The shadow of Greece hung over the meeting of finance ministers from the top seven economies and their central bankers.
Ms Lagarde warned EU members “not to play games” on Greece. Other senior officials warned the EU in Dresden the Greek programme was “unrealistic” if Athens thought it could avoid serious reforms and the EU-IMF programme could avoid further debt concessions. Equally unrealistic, the official added, was to expect Greece to meet its programme target of 4.5 per cent budgetary surplus.
Mutual concessions
All agreed the future of the Greek programme depends on concessions from both Greece and its donors. But the detail and sequencing remain elusive.
“Will there be new loans? Yes, yes, I cannot see how we can pull together a programme together without new money,” said one senior official in Dresden familiar with ongoing EU-IMF talks with Athens.
Germany and France have rubbished Greek claims talks with Athens could be concluded by Sunday. After reaching a primary budgetary surplus last year, one G7 attendee said it had slipped back into negative territory, widening the gap with the 4.5 per cent budget surplus target agreed with creditors in 2012. "If there is a consensus [in Europe] that Greece cannot now get to 4.5 per cent, then Greece needs more financing," said one senior official.
Given that debt write-downs are politically unpalatable in EU donor countries, the official said the most likely form of relief is a further 10-year extension to loans due in 2020. Thatdepends on Athens delivering, not just announcing, reforms.
Greek donors, in particular the IMF, see potential for cuts in public-sector pensions which swallow9 per cent of Greek gross domestic product.
Some Dresden attendees said they were baffled why the hard-left Syriza is sparing vested Greek interests at the expense of the less well-off.
Pressure is building on Athens to find €1.6 billion to replay IMF loans, with the first repayment due on June 5th. Growing global unease at the Greek standoff was clear ahead of Dresden talks, with US treasury secretary Jacob L Lew’s warning that “brinkmanship is a dangerous thing”.
