New euro zone loans to Greece hinge on IMF participation in bailout - ESM

LUXEMBOURG (Reuters) - Greece will only receive more loans from the euro zone if the International Monetary Fund joins its latest aid programme, the head of the bloc’s bailout fund said on Monday, spelling out a condition thus far disregarded by Athens’s creditors.

Greece needs a new tranche of financial aid under its 86 billion euro bailout by the third quarter of the year or it faces the risk of defaulting on its debts.

Under the current programme, Greece’s third since 2010, loans have been disbursed by euro zone creditors without the formal participation of the IMF, although that has always been a requirement.

But with elections coming in the Netherlands and Germany -- two of the most adamant supporters of the IMF role in the bailout, the creditors want to apply the agreed conditions for new loans to Athens more strictly.

Klaus Regling, who chairs the European Stability Mechanism (ESM), said a further slice of financial aid can only be issued once the IMF decides to be part of the programme.

“That is my working assumption because our member states wanted it that way. It is the institutional arrangement that we agreed on in the past,” Regling told reporters in Luxembourg.

The IMF will discuss its role in the Greek bailout in a board meeting on Feb. 6. In a report leaked last week, the IMF said Athens’s debt will rise to an unsustainable 275 percent of its gross domestic product by 2060 if no sizeable debt relief is given to Athens by its creditors.

Germany, the euro zone’s largest economy, has opposed large-scale debt relief unless Greece completes wide-ranging reforms and keeps running budget surpluses of 3.5 percent for the medium-term after the end of the bailout programme in 2018.

Regling said the IMF does not need to provide funds but its expertise is required. EU officials said the IMF is not expected to participate in aid programmes just as an adviser, and a different role may require changes in its procedures that the fund may not want to undertake.

In a regular monthly meeting last week in Brussels, euro zone finance ministers delayed any decision on a new disbursement of aid to Greece. EU officials said a deal was possible at the next meeting in February.

Regling said he was “very nervous” at the prospect of the IMF walking away from the programme because some euro zone states consider its participation crucial. He said the euro zone is working to keep the IMF, which participated in the first two bailout programmes for Greece, on board.

He declined to comment on whether a newly negotiated bailout programme would be needed for Greece if the IMF decided not to participate.

Editing by Hugh Lawson