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September 21, 2018

IMF does not want additional savings for Greece

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Greece IMF reviewThe International Monetary Fund (IMF) does not want additional savings for Greece. The institution has entered an explanatory regime after publishing a full report and its forecast of the country’s development. Economic growth for 2018 is corrected from 2.4% to 2.6%, but also expecting a primary budget surplus of 2.2% of gross domestic product (GDP). At the same time, however, the objectives of the European institutions are for a surplus of 3.5%.

The divergence immediately triggered a number of questions in Athens, especially against the background that the country is preparing for the third review of the rescue program.

Namely, the disputes between European creditors and the IMF about the sustainability of Greek debt and, in general, the ability of the economy to emerge from the severe crisis in the coming years, prolonged with months the second review of the program.

The discrepancies in the forecasts are a problem not only for Athens and the possibility of imposing new savings, but also for the European institutions, which have to decide whether to comply with the Fund’s opinion or not. It depends on whether the IMF will continue to participate in the rescue program for Greece.

The paper recalls that Europe and the IMF managed to find a compromise in the summer of the second review of the program, but it is unclear whether the creditors of the EU will revise their ratings to keep the Fund in the program. This could become a serious problem for the Greek government because the IMF wanted further reductions in pensions and tax increases in the country.

European creditors are currently reluctant not to take these steps right away, but only if Athens fails to meet the set goals. Then, the automatic cost cutting mechanism will come into force and the measures will be implemented in 2019 and 2020 respectively.

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