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IMF fears Grexit without solid Greek reforms

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IMF fears Grexit without solid Greek reforms

Dumpster diving for dinner. Athens, March 2015.

[Giacomo Gasperini/Flickr]

Fears that Greece will exit the eurozone, a “Grexit”, could revive if Greek authorities do not come up with “credible” reforms, notably on pensions, a senior IMF official said Thursday (11 February).

“We have yet to see a credible plan for how Greece will reach the very ambitious medium-term surplus target (excluding debt),” said Poul Thomsen, head of the International Monetary Fund’s European department.

“A plan built on over-optimistic assumptions will soon cause Grexit fears to resurface once again and stifle the investment climate,” he said in an IMF blog.

>>Read: Grexit scenarios: How to leave the eurozone

In the first half of 2015, fears that heavily indebted Greece would have to leave the eurozone mounted when the cash-strapped country defaulted on a debt payment to the IMF.

Since then, the European Union has given Greece a new massive financial aid program — which the IMF has not joined — in exchange for economic measures and pension reform, which are subject of an intense debate in Greece.

“The IMF does not want Greece to implement draconian fiscal adjustment in an already severely depressed economy,” Thomsen said.

>>Read: Economists play down new Grexit fears

But he said that reform of the pension system was crucial to making the country’s debt “sustainable”.

Thomsen said the pension reform must be accompanied by debt relief from the Europeans.

“There is no doubt that both Greece and its European partners will face politically difficult decisions in the coming months to arrive at a program that is viable — one that adds up,” he said.

The IMF repeatedly has said it would not participate in this third European bailout of Greece since 2010, after doing so in the prior two rescues, unless the Greek government proposes credible reforms and the Europeans ease Greece’s debt burden.