Analysis: IMF threat to pull out of Greek bailout challenges Germany

Wed Jul 15, 2015 9:00am EDT
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By Paul Taylor

BRUSSELS (Reuters) - The International Monetary Fund's threat to pull out of bailouts for Greece unless European partners grant Athens massive debt relief poses a stark challenge to Germany, the biggest creditor, which insists on IMF involvement in any future rescue.

The global lender has made itself unpopular with both sides in the Greek debt saga by playing its role as a teller of inconvenient truths without excessive diplomacy.

Its latest intervention, saying in essence that Greece will never be able to repay its debt mountain, is bound to sharpen debate when the German parliament meets on Friday to decide whether to authorize negotiations on a third bailout for Greece since 2010 that could cost an extra 85 billion euros.

It sharpens an unadmitted rift between Chancellor Angela Merkel, who wants to hold the euro zone together, and Finance Minister Wolfgang Schaeuble, who thinks Greece needs to leave the currency area, at least temporarily.

Merkel can count on a big majority in favor of opening loan talks with Athens due to her grand coalition's near monopoly of seats, although she may face an embarrassing revolt among her own conservatives.

But the IMF's debt sustainability analysis may force her within months to choose between two far more unpalatable options: grant massive debt relief or see the IMF walk away.

The report's conclusion that Greece needs debt relief "on a scale that would need to go well beyond what has been under consideration to date" makes it harder for her to argue that Germany will ever get much of its 57 billion euro exposure back.

The IMF released its findings late on Tuesday after Reuters had reported exclusively the study showing Greek debt rising to 200 percent of economic output in the next two years and staying at "highly unsustainable" levels for decades.   Continued...

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013. REUTERS/Yuri Gripas