IMF split demonstrates controversy over Greek bailout

7 Feb 17

A rare public split within the International Monetary Fund’s executive board has served as yet another sign of just how contentious an issue the Greek bailout has become.

Greece Capital Shutterstock.jpg

Greece Capital

IMF directors were split on whether Athens should have to achieve a budget surplus worth 3.5% of GDP by 2018.


The board, which usually presents a united front in its assessments of countries’ economic needs, has published a statement reflecting clear divisions on issues including whether Greece needed to implement more cuts and tax increases to achieve an ambitious fiscal surplus of 3.5% of GDP by 2018.

That question, as well as whether Greece requires more debt relief, is at the centre of an increasingly tense dispute between Greece, the IMF and the country’s European creditors that threatens to revive Greece’s sovereign debt crisis and fears that the country could exit the euro.

While Europe insisted Greece could hit the 3.5% target in 2018 and for a number of years after – an impressive feat for any nation – the IMF argued this target should be loosened or additional austerity measures would be needed, a move that a fatigued Greece is in turn rejecting.

A statement published by the fund today following its latest annual health check of the Greek economy is evidence that the IMF’s directors are also split on the issue.

While it said “most ... agreed with the thrust” of the IMF staff’s appraisal, “some ... had different views on the fiscal path and debt sustainability”.

The crux of the IMF staff’s opinion is that the country does not require further fiscal consolidation and that its current projected surplus – of about 1.5% with the measures required under the bailout package – is sufficient.

If creditors insist on a 3.5% surplus, then the IMF believes more austerity will be needed to achieve that target. In any case, the fund has argued that creditors would also need to provide further debt relief than has already been agreed to reduce the country’s “unsustainable” debt load, estimated at 179% of GDP at the end of 2015.

According to the statement, “most” directors agreed that no more tax hikes or spending cuts were needed given the “impressive” progress Greece has made to date.

All called for efforts to broaden the tax base, combat tax evasion and improve collection, and to make pension spending more efficient to make room for more social assistance to vulnerable groups.

Again, “most” favoured a reorganisation of fiscal policy that had no impact on the budget, and “some considered that the reforms could underpin temporarily higher surpluses” provided they were implemented in a way that minimised their impact on Greece’s economic recovery.

Greece returned to growth in 2016, and its economy is expected to improve in the years to come, if the bailout programme and its required reforms are completed.

However, the spat between Greece and its creditors threatens to derail progress. A review of the country’s compliance with the bailout’s requirements, due in December, has been delayed as a result. This has, in turn, blocked the release of the next round of loans to Greece.

The country has to make €10.5bn worth of debt repayments in June. If it has not received more loans by then, the government’s coffers will have run dry and Greece will risk default.

Following the most recent meeting of the eurozone’s finance ministers, which failed to break the deadlock, officials warned that time was running out for a deal to be reached as a series of upcoming European elections threatened to further disrupt the fragile negotiations. 

Did you enjoy this article?

Related articles

Have your say


CIPFA latest

Most popular

Related jobs

Most commented

Events & webinars