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Has IMF blown up Greece rescue?

Robert Peston
Economics editor

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  • Greece debt crisis
image copyrightAP

Just when it looked as though there could be a pause in the eurozone's Greek crisis, the International Monetary Fund has launched a blistering attack on the bailout deal forced on Athens by Germany and other eurozone governments.

It estimates that Greek government debt will now reach a peak of close to 200% of GDP or national income over the next two years - which it regards as impossibly and unsustainably high.

It says that Greece's debt can now only be made bearable through "debt relief measures that go far beyond what Europe has been willing to consider so far".

And it makes three other savage criticisms of the reforms forced on Greece by the rest of the eurozone, and whose main elements are being rushed through the Athens parliament today.

It does not believe Greece will be able to achieve continuous budget surpluses of 3.5% of GDP or national income over several decades, as demanded by eurozone creditors.

It regards forecast rates of growth for Greece as unrealistically high.

And it believes that the governance of Greek banks is lamentable, at the heart of so many of Greece's economic woes, and not remotely being solved.

Path

So why does this intervention by the IMF, in a statement issued tonight matter?

Well for two very big reasons.

First is that it will make it much harder for the government of Alexis Tsipras to persuade the Athens parliament to back painful austerity measures in votes today demanded by eurozone creditors as the sine qua non of keeping Greece in the eurozone.

But why on earth should Greek MPs vote for a painful economic reform package which the IMF - the supposed global arbiter of these things - does not believe will put the country back on the path to prosperity?

Second the eurozone creditors, and Germany in particular, forced Alexis Tsipras - against his strong preference - to accept IMF participation in the next formal bailout package to be negotiated if Greek MPs pass the initial reform measures tonight.

They told him, in effect, he would be turfed out of the eurozone and into national ruin unless he took more of the IMF's money and fiscal bossiness.

Which also look tragically comic tonight - with the IMF saying that if it's all the same to Mrs Merkel, it would rather not touch Greece with a barge pole.

Running the shop

Or to be tediously literal, the IMF has made it clear that it does not wish to participate in any further Greek bailout, unless Germany and the rest drop their vehement opposition to big write-offs of Greek debt.

Which should be music to the ears of Mr Tsipras, except that presumably he would quite like his creditors to agree among themselves, before presuming to tell him how to run his own shop.

PS: In case you've forgotten, the primary cause of the desperate worsening of Greece's economic and financial plight - that so worries the IMF - is the pernicious interaction between a chronically weakened banking system and an economy being plunged back into recession.

It means both that $25bn will have to be found to strengthen banks, and that government finances will come under further pressure from weakening tax revenues.

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