June 6, 2013 / 12:30 PM / in 5 years

UPDATE 1-EU Commission, IMF at odds over timing of Greek debt restructuring

BRUSSELS, June 6 (Reuters) - The European Commission on Thursday rejected the International Monetary Fund’s view that lenders mishandled the first Greek bailout in 2010 by allowing Athens to delay a debt restructuring to 2012.

The Commission - which together with the IMF and the European Central Bank forms the Troika that prepared the bailouts of Greece, Ireland, Portugal, Spain and Cyprus - said tackling a restructuring in 2010 would have been wrong.

“The (IMF) report argues that an upfront debt restructuring in 2010 would have been desirable. We fundamentally disagree,” Commission spokesman Simon O‘Connor told a news briefing.

“The report ignores the interconnected nature of the euro area member states. Private debt restructuring would have certainly risked systemic contagion at that stage,” he said.

“It would have also severely undermined the programme. This was the unanimous position of the member states of the euro area and, indeed, of the Troika partners at the launch of the programme,” O‘Connor said.

The IMF published its view in an assessment of the Greek bailout late on Wednesday, also admitting it lowered its normal standards for debt sustainability to take part in the 110 billion euro bailout and that its projections for the Greek economy had been overly optimistic.

“An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners,” the IMF report said on Wednesday.

“A delayed debt restructuring also provided a window for private creditors to reduce exposures and shift debt into official hands. As seen earlier, this shift occurred on a significant scale and limited the bail-in of creditors when PSI (losses for private bondholders) eventually took place, leaving taxpayers and the official sector on the hook,” the IMF said.

Greece restructured privately held Greek bonds in 2012 to reduce its debt burden, imposing losses of more than 70 percent on investors after the country’s recession turned out to be longer and deeper than anticipated and reforms were delayed.

Asked about the prospects for future cooperation with the IMF after the criticism in the report, O‘Connor said the report was prepared by IMF staff, and not endorsed by the fund’s board.

“Clearly the Troika is something that did not exist three years ago. It’s been a learning process, we are dealing with extremely complex, challenging and difficult issues, with tremendous pressure on many sides,” he said.

“We have different traditions, different approaches to many issues, we have always managed to come to sound and constructive solutions and a way forward. I would not jump to any conclusions if there should be any changes to the way we work together on the basis of this report.”

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