Germany wants Greece in euro zone, IMF says no special deals

BRUSSELS/BERLIN (Reuters) - Germany on Monday voiced support for Greece to stay in the euro zone and the European Commission dispatched a senior official to Athens to persuade it to take on further reforms to salvage its bailout accord.

International Monetary Fund chief Christine Lagarde, meanwhile, remained firm that as a lender the IMF could not cut any special deals for the crisis-hit country, which has received three bailouts since 2010.

The moves came as the European Commission forecast a large jump in economic growth for Greece of 2.7 percent and 3.1 percent, respectively, this year and next.

Such economic recovery, said Yannis Stournaras, Greece’s central bank chief, could be in danger without a swift agreement with international lenders. Down the road “it may be too late”, he said.

The future of Greece’s multi-billion-euro financial aid program is contingent on Athens concluding a second review of progress in its economic reform obligations.

But months of wrangling over changes to labor and energy markets have been compounded by differences between the IMF and Greece’s European lenders over fiscal targets for Greece, struggling to emerge from years of recession.

The IMF is not party to Greece’s current bailout, and says it will not partake until it has assurances Greece will be able to extricate itself from a spiral of debt.

“We have been asked to help, but can only help at terms and conditions that are even-handed. In other words, we cannot cut a special sweet deal for a particular country because it is that country,” Lagarde, the IMF’s managing director, told Reuters in an interview in Dubai.

She was responding to questions after a series of criticisms by European officials of the stance the IMF has been taking.

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Greek Finance Minister Euclid Tsakalotos responded that Athens was not asking “for favorable treatment” but wanted the IMF to decide if it will participate in the country’s rescue program and have fair demands.

He blamed the IMF for the delays and said Greece was striving for an agreement, at least on a political level, by Feb. 20, when euro zone finance ministers are expected to meet in Brussels to discuss Greece’s bailout progress.

“I would tell Mrs Lagarde to make a decision on whether the fund should participate in the program, to have fair demands which are not extreme,” Tsakalotos told Greek Antenna TV. “What cannot be forgiven is eating up time without giving answers on its intentions.”

European Commission Vice President Valdis Dombrovskis said the IMF was being too pessimistic.

“The problem is that the IMF is coming with very pessimistic growth and fiscal forecasts as regards Greece. Moreover, it is not correcting those forecasts based on facts, based on the actual outcomes,” he said in Frankfurt.

A mission of experts from the lenders was expected to return to Athens this week to give their latest state of play report, EU officials said. European Commissioner for Economic and Financial Affairs Pierre Moscovici said he would travel to Athens on Wednesday to help conclude the review.

A deal would release another tranche of funds from this bailout, worth up to 86 billion euros, and facilitate Greece making a major 7.2 billion-euro debt repayment this summer.

But it is a process fraught with difficulty, raising fears of a re-run of the high drama of mid-2015 when Greece teetered on the verge of falling out of the euro zone.

The Greek (L) and European Union flags are seen behind a stop sign in front of the Greek embassy in Vienna, Austria, February 25, 2016. REUTERS/Leonhard Foeger


Greece almost exited the euro zone two years ago as it was wracked by its debt crisis and years of lender-imposed austerity that killed economic growth and put millions out of work.

But Germany sought on Monday to say that nothing has changed in its desire to keep the euro zone intact with Greece in it.

“For years, euro zone member states, including Germany, have shown active solidarity with Greece with the goal to bring this country to a path of sustainable finances and economic growth,” German government spokesman Steffen Seibert told a regular government news conference. “It is a mission that has dragged on for many years and we are holding on to it.”

Foreign Ministry spokesman Martin Schaefer added: “We want to keep the euro zone whole, including Greece, and we will support everything that helps Greece. That’s why we want the aid program to continue to be successful.”

The size of next year’s Greek primary surplus, which is the budget balance before debt-servicing costs, is a bone of contention between euro zone governments and the IMF.

The IMF believes it will be only 1.5 percent, while the EU Commission said on Monday Greece would meet the primary surplus target of 3.5 percent, in line with its bailout commitments. It had earlier used a slightly higher figure based on different calculations [L8N1FY4Z8].

The higher the surplus and the longer it is maintained, the less the need for any further debt relief to Greece.

The IMF insists Greek debt, which the Commission forecast on Monday would fall to 177.2 percent of GDP this year from 179.7 percent in 2016 and then decline again to 170.6 percent in 2018, is unsustainably high and that Greece must get debt relief. Germany and several other euro zone countries say that if Greece does all the agreed reforms, then debt relief will not be necessary.

Despite the disagreements, Fitch ratings agency estimated that the bailout review would be completed well ahead of July, when Greece faces big loan repayments.

“Doing so in a timely fashion and avoiding the level of brinksmanship of the first half of 2015 would reduce the risk that Greece’s economic recovery is undermined by a hit to confidence or by the Greek government building up arrears to conserve liquidity,” Fitch said.

Additional reporting by Renee Maltezou in Athens and Andrew Torchia in Dubai; Writing by Michele Kambas and Jeremy Gaunt; Editing by Larry King