By Mehreen Khan 22 May 2015
Christine Lagarde says she will not sign off on a piecemeal deal for cash-strapped Greece
Jean-Claude Juncker: "You can not just throw a country out from the monetary union" Photo: JANEK SKARZYNSKI
The International Monetary Fund has ruled out striking a “quick and dirty” deal with Greece, after European leaders failed to reach an agreement over the country's future at a summit in Riga on Friday.
As Greece’s senior creditor, there have been fears the IMF is ready to pull the plug on another financial aid package unless a “comprehensive” agreement is reached with Athens soon.
Fund chief Christine Lagarde dismissed the prospect of a partial release of bail-out cash that would keep Greece solvent up until the autumn.
“It has to be a comprehensive approach, not a quick and dirty job,” Ms Lagarde told an audience in Rio.
“I know there is a lot of work to be done. Parties are now working, receiving proposals, working in cooperation and we will continue to do so as fast as we can.”
Her comments came after Greek prime minister Alexis Tsipras met with his French and German counterparts on the sidelines of a European leaders summit in Riga.
Despite describing talks as "friendly" and "constructive", Ms Merkel dashed hopes that political level agreement could be struck between the leaders.
"A conclusion needs to be found with the three institutions and there needs to be very, very intensive work," the German premier said on Friday morning.
Athens has failed to extract any concessions from its international lenders after four months of fruitless talks, pushing the country towards the edge of an unprecedented default on its official lenders.
German finance minister Wolfgang Schaeuble has hinted Greece should not remain in the euro at all costs, pressuring Mr Tsipras to back down over his Leftist "red lines" on labour and pensions reform.
In contrast to Ms Merkel's comments in Riga, Mr Schaeuble is thought to have touted the possibility of a "parallel currency" for Greece at a recent meeting of European officials, according to reports in Bloomberg.
The German number two is reported to have cited the example of Montenegro, which uses the euro but sits outside the currency union, without explicitly advocating it as a blueprint for Greece.
In an interview with Les Echos earlier this week, Mr Schaeuble refused to either support or deny plans for a parallel currency. The German finance ministry later said the report was "inaccurate" and talk of an alternative currency for Greece was "not up for debate".
The ties that bind: Jean-Claude Juncker greets Mr Tsipras before the beginning of the Riga summit Photo: Ints Kalnins/Reuters
In signs of a rift between Brussels and hard-liners in Berlin, European Commission chief Jean-Claude Juncker warned the single currency was "not just about monetary policy and economic reasons, but also the dignity of the Greeks".
"You can not just throw a country out from the monetary union", Mr Juncker told Wirtschaftswoche.
The introduction of an alternative currency, to help Greece make its domestic obligations in the form of IOU's, could mark the first steps towards a Greek ejection from the single currency.
Any plans for Greece to drop the euro would cause "havoc" in Greece, according to Willem Buiter, chief economist at Citi.
"The notion that Greece exits with or without a shadow currency or a proper currency [is rubbish]. Greece has not, historically, been good at managing an independent currency," said Mr Buiter.
He also dismissed the notion of a Montenegro-style arrangement for Greece as "rubbish" but insisted a default to international lenders would not be "the end of the world" for the country.
Mr Tsipras, who met with the Luxembourg chief, said he was "optimistic" the country's partners would come to an agreement with his government.
"I am hopeful that we will soon be able to reach a stable, long-term and sustainable solution without the mistakes of the past – and that Greece will return, cohesively, to growth.”
Both Greek and German premiers are facing domestic insurrection in their respective parties over the bail-out negotiations.
The Greek premier is facing down the Left Platform of Syriza, who have called for Greece to default on its international lenders and continue making its social security and salary payments to public sector workers.
Outspoken leader of the Left faction, Panagiotis Lafazanis vowed not to sign-up to any deal that would jettison pre-election pledges.
"We will not accept an agreement that puts our program on the fringe," warned the firebrand energy minister.
Ms Merkel meanwhile has seen resistance to Greek aid grow within her Christian Democrat party.
Athens, which has been without international aid since August 2014, faces a series of repayments worth €1.5bn to the IMF in the first two weeks of June.