Greek debt crisis on a 'knife edge', says IMF

AFP 10:28AM BST 17 Jul 2011

Greece's runaway debt is on a "knife's edge", the IMF's mission chief to Athens said in an interview on Sunday as he called for an "invigoration" of structural reforms in the vast Greek public sector.

The new austerity plan has been criticised in Greece for excessive cuts that fueled a greater-than-forecast recession. Photo: Getty

"The Greek debt is sustainable but it is, as we say, on a knife's edge," Poul Thomsen, deputy European director of the International Monetary Fund, told the Ethnos daily.

"Policies must be applied as planned, or the sustainability of the debt will be placed in doubt," he said.

"The programme will not continue to deliver the desired results without a real invigoration of structural reforms in the public sector to ensure a further deficit reduction, and without further reforms to get economic recovery going next year," Mr Thomsen said.

The EU and International Monetary Fund bailed out Athens last year with a package worth €110bn but the country remains in serious financial difficulty, with credit rating agencies having demoted Greece's bonds to junk status.

Athens' debt has exploded to over €350bn and market hostility has kept the struggling country from raising fresh loans, forcing European leaders to the drawing table once more for a new bailout.

 

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Eurozone nations will hold an extraordinary summit on July 21 in Brussels to discuss how to tackle the debt crisis and provide fresh aid for Greece.

EU nations are forced to move quickly to stop the debt crisis spreading from Greece, Ireland and Portugal to other countries perceived as vulnerable, such as Italy and Spain.

The IMF last week noted that Athens needs another €100bn in aid to avoid a default, and that it should come from the European Union and private creditors. It also warned that Greece's debt will hit 172pc of output next year.

The European Central Bank projects a slightly less adverse scenario, arguing that the Greek debt will peak at 161pc in 2012.

"The debt will peak in one or two years and will then decline steadily," Mr Thomsen said on Sunday as he defended the recovery programme applied by the IMF, the ECB and the European Union, known as the 'troika' in Greece.

"The programme has until now achieved most of what we set out to achieve," he said.

The plan has been criticised in Greece for excessive cuts that fueled a greater-than-forecast recession, which in turn neutralised part of the austerity measures.

Mr Thomsen argued that if Athens persists with more planned cutbacks and a sweeping privatisation drive, "markets will say this is impressive, perhaps we need to take a second look at Greece."

 

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Greek debt crisis on a 'knife edge', says IMF - Telegraph