IMF moves closer to ‘approval in principle’ to keep Berlin happy

Reuters — Jeroen Dijsselbloem, who plays a key role in the Greek talks, expected a “deal on the full completion of the second review” at the Eurogroup meeting in Luxembourg next week, his spokesman told Reuters on Friday.

It is not entirely unexpected, as the obstacles set by the German finance minister have delayed the negotiations  progress enough for the German government to appear tough in the eyes of the German voters and any further delay would mean that Greece would default, as all the cash is meant to back to the lenders in the form of loan repayments.

The effect of the 7 billion euro installment on Greece will be to further increase the overall debt of the country without any concessions from the lenders on some concrete debt relief measures.

The chief of the International Monetary Fund, Christine Lagarde, is set to attend the meeting of euro zone finance ministers next week, a further sign that differences between the IMF and Greece’s EU creditors are narrowing on additional debt relief measures for Athens.

The Fund claims that relief assurance will still be required, but that they are working on a way to participate in the programme without risking any cash.

The IMF hopes that in this way – approving the deal in principle – will not be in breach of its own guidelines once again, and will try to present it to its board of directors as a case similar to those in the 1980s when the Fund  had an ‘in principle’ participation in several countries.

With approval in principle, as the second-best option for the lenders, the Fund  would still be insisting on reforms, and debt relief before the IMF would disburse any of its funds, thus giving a helping hand to the hard line image of the German government and the reelection prospects of Mrs Merkel.

[IMF’s participated  ‘in principle’ in   — Sudan (1983), Ecuador (1983), Zaire (1983), Madagascar (1983), Sudan (1984), Jamaica (1984), Zambia (1984), Côte d’Ivoire (1984), Kenya (1985), Somalia (1985), Chile (1985), Zaire (1986), Republic of Congo (1986), Mexico (1986), Nigeria (1986), Argentina (1987), Côte d’Ivoire (1987), Yugoslavia (1988), Brazil (1988).]

Guidelines that were developed  in the context of the 1980s debt crisis prevent  IMF from making loans to countries whose debt is unsustainable – Greece  was treated as a ‘special case’ in 2010 and 2012.

In spite of the growing optimism, a meeting of the  euro working group on Thursday did not achieve much progress, leaving key issues in the hands of finance ministers next week, two EU officials told Reuters.

“There were useful further clarifications on a technical level but the topic will have to be sorted out by the ministers on 15 June in Luxembourg,” an EU official who participated to the talks said.

EU Commission Vice President Valdis Dombrovskis reiterated on Thursday calls to unlock funds to avoid further negative effects on the Greek economy, already weakened by months of protracted talks on new loans.

German foreign minister Gabriel, a Social Democrat, said Greece has upheld its side of the bargain by passing the latest measures to meet bailout terms, meaning it’s time for creditors to end “political blockades” and flesh out plans for possible debt relief envisaged in 2018.