Greece will need relief for ‘unsustainable debt’, says IMF

Missed repayment and capital controls likely to have ‘significant adverse impact’

Anti-Euro protesters scuffle with riot police at the European Union representation offices in Athens, Greece, July 2nd, 2015. Photograph: Panayiotis Tzamaros/Reuters

Anti-Euro protesters scuffle with riot police at the European Union representation offices in Athens, Greece, July 2nd, 2015. Photograph: Panayiotis Tzamaros/Reuters

 

Greece will need debt restructuring and a possible debt write-down to tackle its “unsustainable debt”, the International Monetary Fund (IMF) said on Thursday in a stark analysis of the embattled Greek economy.

While the renewed call for debt relief is likely to provide a boost to Greek prime minister Alexis Tsipras ahead of Sunday’s referendum, the IMF also warned the chain of events that saw Greece miss a loan repayment to the IMF and the imposition of capital controls this week are likely to have “a significant adverse economic and financial impact” on the Greek economy.

The IMF predicts Greece will need more than €50 billion in new financing over the next three years. It also slashed its growth forecast for Greece this year from 2.5 per cent to 0 per cent.

The report was published amid increasing signals from European Union lenders that a No vote on Sunday would jeopardise discussion of a further bailout programme.

Speaking in The Hague, eurogroup president Jeroen Dijsselbloem said Greece was likely to “have no place in the euro zone” if it voted no in Sunday’s referendum.

Illusion

Mr Dijsselbloem directly contradicted claims by Syriza that a No vote would strengthen Greece’s hand in future negotiations with lenders. “One illusion must be swept from the table: that if the outcome is negative then everything can be renegotiated and you will end up with an easier and more attractive package.”

French prime minister Manuel Valls was also unequivocal. “We are asking [Greek voters] to vote with their eyes open and think hard about all the consequences of a No vote, which could lead Greece to leave the euro zone.”

The comments were echoed by ECB board member Josef Bonnici, who said that the terms of any future emergency funding for Greek banks would depend on the outcome of the referendum.

As banks in Greece remained closed for a fourth day, Greek finance minister Yanis Varoufakis said he would resign if Greece voted Yes in the plebiscite, though he would remain a member of parliament. “I personally won’t sign an extend and pretend [agreement]” he said.

Calling for a No vote, he insisted Greek banks would open on Tuesday as planned, and blamed creditors for shutting the banks.