Greek crisis: EU leaders must act decisively or face disaster, says IMF

IMF chief tells eurozone leaders to agree Greece’s bailout or trigger further global crisis as EU ministers delay €12bn lifeline The International Monetary Fund warned European leaders that their hesitant response to Greece’s debt crisis risked triggering the world’s second global financial meltdown in three years. As EU finance ministers scrambled to build a second bailout of Greece in the space of a year, but delayed throwing Athens a €12bn lifeline until next month, the IMF delivered its bluntest public criticism to date of the way EU leaders have handled the crisis. “Policymakers are yet again facing uncomfortable dilemmas, raising uncertainty about the final outcome,” the fund said in its annual assessment of the eurozone. “With deeply intertwined fiscal and financial problems, failure to undertake decisive action could rapidly spread the tensions to the core of the euro area and result in large global spillovers … a disorderly outcome cannot be excluded.” The warning came as the Greek prime minister, George Papandreou, was trying to secure agreement from MPs for a package of measures to cut the country’s huge debts that would mean deep wage cuts and sweeping privatisation. He faces a crucial parliamentary vote of confidence on Tuesday which could yet derail the delivery of the rescue funds. After meeting the ministers in Luxembourg, John Lipsky, the IMF’s acting head, warned that the Greek crisis would “be felt much more strongly around the world” if it was allowed to draw in core eurozone banks. He indirectly signalled that Europe’s attempts to get to grips with the crisis over the past 18 months had been disjointed, indecisive, and unproductive. Lipsky, an American who assumed the leadership of the IMF last month when Dominique Strauss-Kahn of France was forced to resign after being arrested on charges of attempted rape in New York, sounded frustrated with EU leaders’ slow-motion handling of the crisis and exasperated by the arguments raging for months. “The crisis has brought the euro area to a crossroads … Only a cohesive and co-operative approach to crisis management will be successful,” he said. Following weeks of feuding between Germany and the European Central Bank over whether Greece should effectively restructure some of its debt by forcing losses on private creditors, Lipsky demanded an end to the argument, supporting the ECB against Berlin. “It is essential to bring the debate about debt restructuring and the set-up of the ESM quickly to a close,” he said, referring to the European stability mechanism, or permanent eurozone bailout fund, to be established in 2013. His criticisms appeared directed mainly at Germany, which had been insisting Greece’s second bailout should entail “haircuts” or losses for the private banks, pension funds, and insurance companies owed billions by Greece in government debt. The Germans have also been seeking to establish a compulsory role for private creditors in the permanent regime to come into force in two years’ time. The Luxembourg meeting failed to finalise both a second bailout, expected to amount to €120bn over three years, and to disburse a tranche of €12bn from the rescue launched in May last year, declaring that first Papandreou would need to win cross-party support for the radical austerity and privatisation being pushed through parliament. “First, Greece must fulfil the conditions. Then we can decide on a new programme so that the payout of the next instalment is possible,” said Wolfgang Schäuble, the German finance minister. If Papandreou failed “this path cannot be taken”. Jean-Claude Juncker, president of the euro group of 17 EU states, called a further meeting of finance ministers for 3 July, a week on Sunday. Greece needs the €12bn by mid-July to avoid default. The second bailout is to be “financed through both official and private sources … in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece”, the eurozone ministers said. The voluntary role of private creditors was a victory for the ECB, while the mention of a “substantial reduction” was aimed at satisfying Germany. The EU ministers demanded support for Papandreou from opposition parties. “Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success,” said their statement. Greece European debt crisis European Union Euro IMF European Central Bank Ian Traynor Larry Elliott guardian.co.uk

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