Greece crisis: IMF attacks EU over proposed third bailout

The International Monetary Fund has warned that Greece will need significantly more debt relief than has been envisaged by its European lenders, raising doubts about its participation in a third bailout package for the indebted country.

A confidential updated debt sustainability analysis by the IMF found that the dramatically deteriorating economic situation in Greece meant that lenders must consider further debt reduction mechanisms, such as a 30-year grace period on servicing its European debts.

The IMF’s continued participation in the Greek bailout was one of the crucial sticking-points in Sunday night’s negotiations between the Greek prime minister Alexis Tsipras and creditors, with euro zone countries insisting on the IMF’s continued participation.

Speaking on Monday in Brussels, Klaus Regling, the head of the ESM fund, said that he expected the IMF to contribute to any third bailout package for Greece, once Greece's arrears with the institution had been paid.

The new report highlights continuing tensions between the IMF and European lenders on the Greek bailout, particularly the contentious issue of debt relief.

Yesterday, the fund confirmed that Greece had missed a €456 million payment on Monday, bringing its total arrears to the IMF to €2 billion.

Finance ministers gathering in Brussels yesterday for their fourth meeting in four days, raised the issue of “bridge financing” for Greece, as creditors decide how to tackle Greece’s immediate short-term financing needs.

As well as its IMF arrears, Greece is also facing a €3.5 billion repayment to the European Central Bank on Monday.

A controversial proposal to tap the EFSM fund, which pools money from all 28 EU member states, was opposed by British chancellor George Osborne.

Arriving in Brussels, Mr Osborne said: “Britain is not in the euro, so the idea that British taxpayers will be on the line for this Greek deal is a complete non-starter. The euro zone needs to foot its own bill.”

A group of senior officials has been appointed to look at the various options for bridge financing, with the eurogroup expected to discuss the issue on a conference call later this week.