Lagarde, EU finance chiefs head for clash

By Time of article published Nov 19, 2012

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Sandrine Rastello Manila

International Monetary Fund (IMF) managing director Christine Lagarde would defend the IMF’s credibility in talks on Greece this week, she said yesterday, signalling a potential clash with euro finance chiefs over Greek debt sustainability.

Lagarde cut short a visit to south-east Asia yesterday to return to Europe for a meeting with euro region finance ministers in Brussels tomorrow. With the two sides deadlocked over the timeline for reducing Greek debt levels, Lagarde said she was approaching the talks feeling “patient and resilient”.

Lagarde said she would seek to “operate independently” while sticking to the fund’s rules, suggesting no retreat from her position in the negotiations. Maintaining the “solidity of our advice” on Greece would be just as important as ensuring the country’s programme works, she said.

Lagarde took issue last week with European governments’ decision to push back a debt reduction target by two years to 2022 against the fund’s recommendations, raising questions over whether the IMF would keep financing Greece. Agreement on how to cut Greece’s debt to sustainable levels is key to disbursing the next tranche of aid under the bailout that the EU co-finances with the IMF.

“We never leave the table,” Lagarde said when asked about dropping support. She declined to answer a question on whether the IMF had room for manoeuvre in the talks.

The IMF’s goals were to achieve “a solid programme for Greece that convinces investors today that it will stand tomorrow, and the reliability, credibility, quality of the advice we give and that we lend to the Europeans.

“I’m always desperately optimistic and I’m always trying to be constructive, but I’m guided by the two objectives.”

The IMF target is for a reduction of Greece’s debt to 120 percent of gross domestic product (GDP) by 2020, from a projected peak of 190 percent of GDP in 2014. European officials at a November 12 meeting agreed to postpone the 120 percent target to 2022, while rejecting a write-off of official debt.

Tomorrow’s meeting was called to reach a final deal.

European Central Bank governing council member Jens Weidmann said on Friday that Greece might need a second debt write-off after policymakers in Athens enacted economic reforms. Lagarde, who has suggested that Greece might need another debt cut, declined to comment on Weidmann’s suggestion.

Greece has already undergone the biggest sovereign restructuring in history after getting private investors to forgive more than e100 billion (R1.1 trillion) of debt in March. German Chancellor Angela Merkel’s chief spokesman said last month that imposing losses on European taxpayers who had lent to Greece was “out of the question”. – Bloomberg

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