IMF wants to give Greece two more years

To tame budget overrun to agreed levels, Athens needs time till 2016, says IMF chief

I / Tokyo October 11, 2012, 15:50 IST

The International Monetary Fund is happy for debt-battered Greece to have an extra two years to bring its runaway deficit in line with the demands of global creditors, its chief said today.

Christine Lagarde told a news conference in Tokyo it would take time before Athens is able to tame its budget overrun to agreed levels, in comments that add weight to the move to push back the deadline to 2016.

"Instead of frontloading heavily it is sometimes better -- given the circumstances and the fact that many countries at the same time go through that same set of policies with the view of reducing their deficits -- to have a bit more time," she said.

"This is what we've advocated for Portugal, this is what we've advocated for Spain and this is what we are advocating for Greece. I have said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation program."

Greece is going through a painful round of austerity and spending cuts imposed on the country in return for promised loans and debt relief worth a total of about $448 billion since 2010.

The belt-tightening has forced Greece into its fifth year of recession, with its economy forecast to contract by 3.8% in 2013.

About one in five people are unemployed in the country, and many of those who still have jobs have seen their pay slashed.

The IMF says Greece's public debt is expected to stand at 170.7% of GDP, one of the worst fiscal pictures in the world and the figure is expected to rise to nearly 182% in 2013.

Greece has agreed with its creditors -- the so-called Troika of the European Union, the European Central Bank and the IMF -- that it will reduce its public deficit to 2.1% of GDP by 2014. It presently stands at more than three times that figure.

A two-year delay would set back Greece's deficit target to 2016.

The IMF has previously said there are some "good arguments" for pushing back the deadline, but today's comments in Tokyo marked the first time Lagarde had been so explicit.

However, allowing Athens more time to get its house in order still leaves the problem of how to fund the overdraft.

At the end of September, Lagarde said Greece was facing a "financing gap", but has so far appeared reluctant to further increase what is already the largest loan in its history.

Private creditors, who have already taken a more-than 100 billion euro haircut, are also seen as being unlikely to want to step into the breach.