IMF demands and surplus questions could derail autumn review

Greece is set for another nail-biter this coming fall as sources say that the International Monetary Fund intends to raise objections over the government’s primary surplus targets for 2018 and to demand that Greek banks be subject to asset quality reviews (AQRs).

According to sources, it is unlikely that the IMF will finance the Greek bailout program. In spite of this, they add, it won’t back down from its demands when negotiations begin to conclude the third review of the country’s third bailout in the autumn.

Finance Minister Euclid Tsakalotos has called on the IMF to make its intentions clear with regard to the Greek program by Christmas – on the assumption that, by that time, the new German government will have revealed whether it intends to elaborate what debt relief measures for Greece it would be willing to support.

The IMF has repeatedly stressed that Greece’s debt is unsustainable, and that a sustainable debt is among the conditions it has set to join the program.

However, the IMF’s own deadline to make a decision vis-a-vis Greece is February 2018.

Kathimerini understands that there is an ongoing clash of sorts within the Fund between European officials and IMF bureaucrats over different aspects of the Greek program, especially with regard to banks.

According to the IMF, Greek banks need to be recapitalized to the tune of at least 10 billion euros, and the Fund is asking for AQRs to ascertain their exact needs.

Sources say this demand has fueled dismay within the European Central Bank, which sees it as an effort by the Fund to test Greek banks outside the framework of the eurozone, which has already scheduled stress tests in May 2018.

The ECB has said that it will conduct AQRs only if Greek authorities ask for them. This, however, appears highly unlikely at the moment. But other difficulties also loom, with regard to Greece’s aim to meet a 3.5 percent primary surplus target in 2018.

Sources within the IMF said it is highly likely that the issue will be broached during the negotiations to conclude the review in the autumn.

The IMF predicts that Greece’s surplus for 2018 will be at 2.2 percent. The same sources said, however, that they don’t expect the Fund to demand more measures for 2018 – especially since the fiscal correction mechanism will be in play in 2018.