IMF: Greece Needs ‘Painful Reforms’ to Return to ‘Sustainable Growth’

Wednesday, February 8th, 2017
Last Update: 14:21

Greece needs to make “painful political and social reforms” in order to return to “the road of sustainable growth,” said the International Monetary Fund Director of European Affairs, Poul Thomsen.

The IMF official introduced the IMF report on Greece via teleconference and argued that Athens should reduce pensions and the tax-free threshold to employees and retirees in order to create a growth-friendly environment.

Thomsen acknowledged that there were disagreements between IMF board members during the discussion of the report. He also acknowledged that progress has been made in convergence of opinion between European lenders and the Fund regarding the Greek debt sustainability, noting that the gap has been reduced because the “Europeans agreed to reduce the years that Greece should maintain high primary surpluses.”

However, he underlined that differences on the issue of debt sustainability remain, as the Fund insists that primary surpluses of 3.5% cannot be sustained for many years.

Thomsen repeated that Greece does not need to take additional austerity measures but argued that it is necessary to proceed with difficult reforms that will allow a more equitable distribution of social spending, creating a more friendly framework for the growth of the economy.

However, even with these reforms (in pensions, taxation, market liberalization and strengthening competitiveness), he claimed, Greece will not manage to get on track if the reforms are not accompanied by a generous adjustment of its debt in order for it to become sustainable.

Thomsen admitted that some IMF “executives expressed their disagreement” on the issue of a debt haircut.

When asked about the possibility of a Grexit, Thomsen clarified that Greece needs reforms that would bring it closer to the rest of euro zone members, but he said the Fund is not making projections regarding a Grexit.

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