U.S., IMF Step Up Calls for Europe to Restructure Greece’s Debt
Treasury Secretary Jacob Lew warns against accidental exit of Greece from eurozone
WASHINGTON—The U.S. and the International Monetary Fund issued their most forceful calls yet for Europe to restructure Greece’s debt amid growing fears the country’s teetering economy could propel it into a damaging exit from the eurozone.
U.S. Treasury Secretary Jacob Lew and IMF Managing Director Christine Lagarde said on Wednesday that Greece’s debt burdens would overwhelm the country without eurozone lenders—particularly Germany, which has opposed debt relief for Greece—reducing its overall debt load.
“Greece’s debt is not sustainable,” Mr. Lew said. “The real question is, can [Greece] make the changes that will satisfy Europe to put in place the kind of debt restructuring that needs to be there.” Ms. Lagarde, speaking at a separate event, also said euro leaders must agree to debt relief to ensure the country can return to health.
The IMF, as one of the primary lenders to Greece since 2010, had largely tiptoed around the subject of debt restructuring, at least in public. Late last week, however, the fund changed its public message, taking the unusual step of publishing a preliminary assessment of the county’s debt in which it said Europe needed to extend Greece’s debt maturities by 20 years “at a minimum.” It warned that a debt write-down might be necessary to ensure its burdens are sustainable.
“It may well be that the numbers have to be revisited,” Ms. Lagarde said Wednesday.
The U.S. has previously said a financing solution should consider Greece’s debt sustainability. But officials have hedged their language, mindful of pressing Germany too strongly in public. Mr. Lew, for example, told German Finance Minister Wolfgang Schäuble, Greek Prime Minister Alexis Tsipras and other eurozone officials last week that a deal should include “a discussion of potential debt relief for Greece,” according to the Treasury Department. Berlin has previously expressed openness to discussing potential debt relief, but only if Athens implemented all of the creditors’ demands for economic overhauls.
But now the U.S. and IMF appear to be stepping up the pressure on Germany to reach a deal as a Greek euro exit looks increasingly possible. In his remarks Wednesday, Mr. Lew said Greece’s government likely won’t be able to persuade a bailout-fatigued nation to approve all of the budget cuts and economic overhauls that creditors are requiring “without some sense of what the debt sustainability looks like.”
At the same time, few European governments will be able to sell any new rescue package “without some sense that there’s going to be a reliable implementation of the agreements,” Mr. Lew said at an event at the Brookings Institution in Washington.
President Barack Obama and other U.S. officials have been pressing Athens and the eurozone’s powerhouse, Germany, to be more flexible in bailout negotiations so a deal can be reached to keep the country in the currency union. Mr. Obama on Tuesday urged German Chancellor Angela Merkel and Mr. Tsipras in separate phone calls to compromise.
It is unclear whether the U.S. and IMF calls will sway Germany. Ms. Merkel on Tuesday ruled out a write-down of Greece’s debt, saying a debt-maturity extension might be considered. But she said such a discussion of potential debt relief could happen “at the very end.”
Athens, meanwhile, has long insisted debt relief must be included as part of any deal, not as a subsequent matter.
Greece’s economy is on the brink of spiraling into chaos. The country has just days before it runs out of cash, a “life-or-death” deadline that Mr. Lew said has escalated the risk of an accidental exit from the currency union.
Eurozone officials are now considering the rough sketches of Greece’s first bailout proposal since voters Sunday rejected terms offered by the creditors.
Despite the referendum, Athens appears to be taking a more conciliatory tone, promising to start implementing some economic-policy overhauls by early next week. Leaders gave Greece a Sunday deadline to detail their proposal, saying it must provide tougher economic measures if the country wants to avoid further financial calamity.
Mr. Lew expressed his own reservations about whether Europe can secure a deal.
“It’s going to be a lot to do in a short period of time,” he said. There is a question about whether Athens and its creditors can “time those things so that they can happen so that the political realities of both Greece and Europe, that these actions can be taken simultaneously.”
Despite the call for restructuring, Ms. Lagarde cautioned Athens—and perhaps Europe—against thinking Greece would be treated as a unique case. The government last weak requested the IMF delay its repayment schedule amid a major cash shortfall, just hours before it defaulted to the IMF. The fund, under its rules, can’t lend to Greece until the government clears its arrears with the IMF.
“The IMF has to follow its rules, should not bend the rules and always (has to) be evenhanded. There cannot be any special treatment,” she said.
If the IMF approved the delay, however, it would technically be absolving Athens of arrears and paving the way for the fund to continue bailing out Greece.
Although U.S. officials say Europe’s economy is better prepared to handle an implosion of Greece’s economy and U.S. exposures are limited, administration officials remain concerned about the economic and political fallout from a Greek exit. A worsening of the Greek crisis could weigh on U.S. exports and fuel market turmoil.
And a eurozone exit raises geopolitical concerns as Athens rekindles ties with Russia and risks turning into a failed state.
“It’s a mistake for the European economy, for the global economy, to take the risks involved with an uncontrolled crisis in Greece,” Mr. Lew said. “It’s geopolitically a mistake.”
wsj
