The IMF and its European partners are not yet ready to discuss terms of a second Greek bailout, IMF Managing Director Christine Lagarde said on Monday, urging Athens to do more to deal with its debt crisis.
In her first round-table with Washington-based news agencies since taking the helm of the IMF a week ago, Lagarde said Greece had taken important steps to cut its budget deficit but they were not enough.
“In my view we're not at the stage of discussing the conditions and terms, and length and volume, and nothing should be taken for granted,” Lagarde said.
“Greece has done a lot of work to reduce deficits and achieve fiscal consolidation in the range of five percentage points of GDP; this is a significant achievement,” she added. “We all know this is not sufficient, that more work needs to be done.”
She said a solution to Greece's problems “was a work in progress” that needed to be worked out within Greece, and the “Troika” of partners that include the European Union, European Central Bank and the IMF.
The euro extended early losses in Asian trade on Tuesday after Lagarde's comments, sinking to a four-month low against the U.S. dollar and a record low against the Swiss franc.
Global stock markets also suffered sharp losses for a second day on escalating worries that the threat of contagion from Greece's debt crisis could force more European countries to seek financial aid.
EU finance officials, meeting in Brussels on Monday, sought to agree on ways to help Greece, promising cheaper loans, longer maturities and a more flexible rescue fund to help Athens and the growing threat to Italy and Spain. They said new measures would be announced “shortly” but gave no timetable.
European policymakers are trying to figure out how the private sector can be involved in a broader package of measures to help fund Greece's funding gap of over 60 billion euros ($87 billion) in 2012 and 2013.
There were no indications that the EU had broken a stalemate on how banks, insurers and other funds should share the cost of additional funding for Athens.
Lagarde said IMF First Deputy Managing Director John Lipsky was representing the IMF at the talks in Brussels.
Asked why restructuring of private debt in Greece has not been publicly called for by the IMF, she said: “The Fund has supported cases of restructuring, but this is very much something that needs to be determined on a case-by-case basis.”
The IMF contributed 30 billion euros towards a 110 billion euro rescue package for Greece last year led by the European Union and European Central Bank.
Lagarde also said the contagion currently engulfing Italy was tied to market-driven forces.
In addition to fiscal consolidation measures in Italy, the country had to find ways to boost economic growth to help restore confidence, she said.
“Clearly, Italy is facing issues at the moment, which are essentially market driven, which I'm sure the Italian government, together with its partners, will be very attentive to,” Lagarde said.
She said the IMF had recently conducted a review of Italy's economy and “some of the Italian numbers are excellent.”
Italy's primary deficit “was one of the lowest,” she said, referring to the country's low budget gap and a liquid bond market that is largely in domestic hands.
She said the IMF had to be alert to any significant difficulties arising from the effects of contagion.
Lagarde said through IMF programs in Greece, Portugal and Ireland, the Fund's main focus was to ensure the country's debt was put on solid footing again and that it was eventually able to return to international markets.
She said the Fund was not “just a cash machine, and certainly not a grant machine” and adjustment programs needed to include macroeconomic measures, as well as reforms, that would help restore its current account balances.
Lagarde made it clear at the outset of the interview that she was still easing into the job, choosing her words carefully on the euro zone crisis, and at times declining to get into details. - Reuters