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IMF warns that Greece needs more debt relief

John MacDougall, AFP | IMF head Christine Lagarde at a Eurogroup meeting in Brussels on July 12, 2015

Greece needs far more debt relief than its eurozone partners have planned due to the devastation of its economy and banks in the past two weeks, a study by the International Monetary Fund reports.

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"The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” said the IMF in a the report.

The IMF study said Greek debt would now peak at close to 200 percent of economic output in the next two years, compared to a previously forecast high of 177 percent.

The report said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. Otherwise, they must make annual transfers to the Greek budget or accept “deep upfront haircuts” on existing loans.

An EU source said eurozone finance ministers and leaders had been aware of the IMF figures when they agreed on Monday on a roadmap to a third bailout.

The study is likely to sharpen fierce debate in Germany about whether to lend Greece more money. The debt analysis also raised questions over future IMF involvement in the bailout and will be seen by many in Greece as a vindication of the government’s plea for sweeping debt relief. A Greek newspaper called the report, which was initially leaked, a slap in the face for Germany.

Late on Tuesday, a senior IMF official, who spoke on condition of anonymity, said, “We have made it clear ... we need a concrete and ambitious solution to the debt problem.

“If you were to give them 30 years grace you are allowing them in the meantime to bring down debt by ... getting some growth back.”

German Finance Minister Wolfgang Schaeuble said in Brussels on Tuesday that some members of the Berlin government think it would make more sense for Athens to leave the eurozone temporarily rather than take another bailout.

Battle for Greek parliament

The study emerged as Prime Minister Alexis Tsipras struggled to persuade deeply unhappy leftist lawmakers to vote for a package of austerity measures and liberal economic reforms to secure a new bailout.

“The strongest opposition the prime minister faces is actually from within the ranks of his own party,” FRANCE 24’s correspondent in Athens, Nathalie Savaricas, reported. “It remains to be seen how many of the left faction in his party will vote against it.”

In an interview with state television, Tsipras said that although he did not believe in the deal, there was no alternative but to accept it to avoid economic chaos.

The Greek finance ministry said it had submitted the legislation required by a deal Tsipras reached with eurozone partners on Monday to parliament for a vote on Wednesday.

Assuming Greece fulfils its end of the bargain this week by enacting a swathe of painful measures, the German parliament is due to meet in a special session on Friday to debate whether to authorise the government to open new loan negotiations.

A one-way street

In the interview on Greek state television, Tsipras defended the deal he signed up to, saying it was better than the alternative of being forced out of the eurozone.

He said banks, closed for the past two weeks to prevent a flood of withdrawals that would collapse the banking system, would reopen once the deal had been fully ratified by parliaments in Greece and other European countries.

Tsipras could not conceal the bitterness left by last weekend’s acrimonious eurozone summit.

“The hard truth is this one-way street for Greece was imposed on us,” he said.

A poll in the To Vima newspaper showed that more than 70 percent of Greeks believed there was no alternative to a deal and that parliament should pass it.

Having staved off a financial meltdown, Tsipras has until Wednesday night to pass measures tougher than those rejected in a referendum days ago. With as many as 30-40 hardliners in his own ranks expected to mutiny, Tsipras will likely need the support of pro-European opposition parties to muster the 151 votes he needs to pass the law in parliament.

FRANCE 24’s Nathalie Savaricas reports from Athens

Speculation has grown that the fractures caused by the bailout will be too much for the government to bear and Tsipras will be forced to step down. But he appeared to rule out an early exit or forming a national unity government with opposition parties.

“The worst thing a captain could do while he is steering a ship during a storm, as difficult as it is, would be to abandon the helm,” he said.

Syriza and its right-wing nationalist junior coalition ally held separate meetings to prepare for parliament sittings to pass the laws, which include plans for tax hikes, pension reforms and tighter supervision of the government’s finances.

It was a spectacular turnaround for a Syriza party voted into power in January promising to end years of cuts and recession in a country where one in four people is unemployed.

Leaving euro?

Austria’s Chancellor Werner Faymann said a “Grexit” could not be ruled out despite the agreement, echoing findings by a Reuters poll of 60 economists, some of whom saw at least a 50 percent chance of Greece leaving the currency.

The poll, which was carried out in the 24 hours after news of the agreement broke, also pointed to scepticism about whether the deal was good for both Greece and Europe, and whether Greece had enough assets to sell to meet the terms of the deal.

There has been mounting anger at the government and creditors as many Greeks decry what they see as the humiliation of their country being treated like a European colony.

The pain for Greece continued, with strict controls on withdrawals from cash machines and businesses being squeezed dry.

A Greek trade federation called on the government to loosen capital controls to allow companies to make payments owed to overseas vendors, and pharmacists warned they were having difficulties getting supplies.

(FRANCE 24 with REUTERS)

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